BOFIT Viikkokatsaus / BOFIT Weekly 2017/02

Consumer prices were up 5.4 % y-o-y at the end of December, the lowest pace for 12-month inflation since spring 2012. Inflation was nearly 13 % at the end of 2015.

Most of the slowdown in inflation came from a relatively modest rise in food prices, up just 4.6 % last year compared to 14 % in 2015. Food makes up a very large part of the price basket of consumer goods and services. Last year, food (including alcoholic beverages) was 38 % of the basket, a slightly larger share than in previous years. Two food categories distinctly supported overall price moderation. Prices of greens, root vegetables and fruits, which rose rapidly in 2015, were at the end of 2016 considerably below the level of end-2015. Meat and meat products, which for many years have represented nearly 10 % of the consumer basket, only rose slightly compared to the rise in 2015. This was also reflected in the small increase in the price of the official minimum food basket (up a bit more than 3 % last year, compared to almost 9 % in 2015), even if prices of milk and dairy products were up nearly 10 % in 2016.

The rise in prices of non-food goods also slowed, but was still 6.5 % at the end of December. Among them, overall disinflation was mostly supported by a notably milder rise of prices than in 2015 in two categories: passenger cars and clothing & textiles (9 % and 7 % basket shares, respectively).

The prices of services rose 10 % in 2015, but less than 5 % last year. A marked effect came from housing costs which rose considerably more slowly than in recent years (they make up 9 % of the consumer price basket). Especially increases in natural gas rates for households were again below inflation.

The most distinct factor underlying the slowdown in inflation was the ruble's recovery in the course of 2016. The average exchange rate for 2016 was only around 5 % less than in 2015, when the fall was 25 %. In addition, the rise in producer prices moderated significantly, which also reduced pressure to raise consumer prices.