Russian inflation figures for February show the rate fell slightly below market expectations at 11% year on year. However, experts predict that it will fall further in March, to the central bank's target rate of 4% as base effects take hold. (chart)

“We don’t think there’s been enough evidence in the past month to convince the central bank to hike interest rates at its meeting next week, but we still think it will deliver a 50bp rate hike (to 8.00%) at its following meeting in April,” said Liam Peach, an emerging market economist with Capital Economics.

Consumer prices also rose less than expected in February, at 0.5% month on month (compared to the forecasted 0.7%), and significantly less than the previous month's 0.8%. Food inflation in particular declined, dropping to 9.3% y/y as prices rose only by 0.8% m/m. The overall y/y inflation rate decreased from 11.8% to 11%.

Prices for goods were also relatively soft, with a 0.1% m/m decline. Non-food goods prices were particularly stagnant, having remained flat since mid-2022. This is weaker than usual, and household equipment prices in particular continued to decline, with TV and radio prices falling another 4.4% m/m and down 13.3% y/y. Services inflation, however, was stronger at 0.7% m/m, although the y/y rate still decreased to 13.0% after two consecutive increases.

“Headline inflation will fall sharply this month as the surge in prices in March 2022 falls out of the annual price comparison. We think inflation will temporarily fall below the central bank’s 4% target and stay there throughout Q2. Even so, policymakers will look through this and focus more on underlying price dynamics and inflation risks. The central bank was much more hawkish at its meeting last month and has become more concerned about inflation risks from government spending, the labour market and the ruble,” Peach adds.

The CBR said at the last meeting in February that “if pro-inflation risks intensify, the Bank of Russia will consider the necessity of key rate increase at its upcoming meetings”.

“We don’t think there has been evidence over the past month to warrant a hike next week, but we still think the CBR will deliver a 50bp rate hike, to 8.00%, in April,” Peach concludes.