Russia’s consumer price inflation (CPI) fell for the third month in a row to 15.9% year on year in June, down from a peak of 17.8% in April, RosStat reported on July 8.

As the chart shows, inflation was rising steadily following the start of the coronavirus (COVID-19) pandemic, driven up by disrupted supply chains and soaring food prices. However, inflation took another step up in March after Russia invaded Ukraine.

The fast action by the Central Bank of Russia (CBR) and an emergency doubling of rates to 20% on February 28 seems to have been effective and quickly quashed the inflationary pressures from the war and the steep devaluation of ruble that followed the invasion. As bne IntelliNews reported, inflation expectations amongst the Russian population have been falling quickly since then, although remain elevated.

The receding inflationary pressure in the last months has allowed the CBR to cut rates four times in three months to bring them back down to the pre-war level of 9.5% on June 10. More cuts are anticipated and the CBR predicts that inflation will return to its target level of 4% in 2023.

“The further decline in Russia’s headline inflation rate to 15.9% y/y in June confirms that inflation has already passed its peak and we expect price pressures to ease further over the coming months. This is likely to prompt the central bank to cut interest rates by another 100bp, to 8.50%, later this month, although the scope for further aggressive easing is limited,” said Jason Tuvey, a senior Emerging Markets economist with Capital Economics, in a note.

In month-on-month terms, consumer prices fell by 0.3% in June – the largest decline since August 2017. The easing of price pressures over the past couple of months has primarily reflected the rebound in the ruble, which has pushed down on import prices and helped to quell inflation. Non-food goods prices fell by 0.4% m/m, with the y/y rate dropping from 19.2% in May to 17.9% in June. In turn, that was supported by sharp falls in the prices of TVs and building materials, although these were smaller than in previous months, Capital Economics reports.

The price of food has also started to fall, which remains the main driver of inflation. A chunky 9.6% m/m decline in fruit and vegetable prices underpinned an easing of broader food inflation, says Turvey. “The one exception to this picture was the services sector, where inflation edged up from 10.0% y/y in May to 10.2% y/y in June,” the analyst added.