OREANDA-NEWS. September 15, 2010. Deputy Economy Minister Andrei Klepach said that his ministry expects monthly inflation in September to reach 0.8% MoM. He added that higher inflation will be the result of seasonality (the start of autumn increases in fresh food prices), as well as of the recent hikes in prices for grains and eggs, reported the press-centre of OTKRITIE Financial Corporation.

View: In the past decade, Russia has experienced this level of monthly inflation in September only twice, in 2007, when the CPI rate was driven up by an acceleration in global food prices, and in 2008 when consumer price movements belatedly followed rallies on global commodity and stock markets. This time inflation is driven primarily by domestic factors such as the poor harvest. If the Economy Ministry is right in its assumptions, annualized inflation will hit 7%YoY by the end of the month. Between October and December consumer inflation in Russia traditionally accelerates following increases in fresh food prices, growing budget expenditures and the payout of annual bonuses. That means that in 2010 inflation could easily exceed the latest official forecast of 8%YoY. We believe that it could cross the 9% YoY mark.

Action: Authorities have very few means to control inflation in the short term. According to Klepach, the Cabinet has no plans to change its schedule for tariff hikes, which leaves the mechanisms of the currency exchange rate (stronger ruble) and stringent budgetary policy (lower spending) as the only two viable options for anti-inflation policy.