BOFIT Viikkokatsaus / BOFIT Weekly 2017/41

Consumer prices rose by 3 % y-o-y in September, which was Russia's smallest on-year increase in inflation in the entire post-Soviet era. Inflation expectations have also fallen to their lowest level ever. The continuing decline in Russian inflation this year reflects the current low-growth economic environment, the CBR's relatively tight monetary policy and ruble appreciation. The CBR estimates that a 1 % change in the ruble's exchange rate results in a change in the inflation rate of 0.1-0.15 percentage points within a few months.

For the first time, inflation has also fallen below the CBR's inflation target of 4 %, but the CBR views this to mainly reflect transitory factors. In recent months, inflation has been stemmed by a seasonal drop in prices for fruits and vegetables boosted by good crops this year. In September food prices rose by 2 % y-o-y, non-food goods by 3 % and services by 4 %.

Most forecasts see inflation hovering around 3–4 % this year and next. This should allow the CBR to continue to lower the key rate, which currently stands at 8.5 %. The CBR estimates that the longer-term level of key rate compatible with its 4 % inflation target is 6.5–7 %.