Russians Face Rising Food, Fuel Costs Ahead of July Rate Meeting

(Bloomberg) -- Price growth in Russia accelerated for the sixth straight month, underscoring the headwinds the central bank has faced in curtailing inflation and all but guaranteeing policymakers will hike the key rate at their July meeting. 

Annual inflation in June increased to 8.59% from 8.30% in the previous month, according to Federal Statistics Service data published late Wednesday. While in monthly terms, price growth slowed to 0.64% from 0.74% in May, it still remains elevated, driven by the cost for both food and services.  

Staples like vegetables have become 19% more expensive compared to the previous year, with prices climbing by 2% in June from just the previous month. Prices for potatoes increased by almost 34% since only a month earlier.

Inflation has continued to accelerate in early July due to a planned increase in utility tariffs and the cost of public transportation, as well as a seasonal spike in prices for plane tickets and hotels.  

During the week leading up to July 8, prices rose 0.27%, less than the 0.66% a week earlier. Still, food and gasoline were among the goods that saw the fastest growth in prices. Gasoline inflation accelerated for the third week in a row. 

That leaves the Bank of Russia with little choice but to further tighten monetary policy at the upcoming July 26 meeting. 

Real interest rates, defined as nominal rates minus inflation, in Russia have already reached levels last seen in the months after the start of Russia’s war on Ukraine. The Bank of Russia has held the benchmark at 16% since December, but Governor Elvira Nabiullina has warned that a “significant” rate hike in July will be needed if inflationary pressures don’t start to fade. 

Rate-setters will most likely consider a hike of 100 to 200 basis points at the upcoming meeting, Deputy Governor Alexey Zabotkin said earlier this month, according to the Tass news service.

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