Russian inflation remains subdued, but inflation expectations are rising

June consumer price inflation slowed slightly from 2.4 % y-o-y in May to 2.3 %. Much of the slowdown came from lower food prices, which declined by 0.2 % y-o-y. The drop largely reflects the high fruit & vegetable prices of early summer last year. Prices of non-food goods rose by 3.7 %, while prices for services were up 4.1 %. The ruble's weakening in April may have been behind some of the price increases, at least with regard to goods.

The Central Bank of Russia's June household survey found inflation expectations rising for the first time since early 2017. Household inflation expectations seem to be driven especially by higher fuel prices. Inflation expectations are among the factors that the CBR takes into account when setting monetary policy. The CBR executive board's next interest rate policy meeting is set for July 27.

The CBR's inflation target is 4 % at the end of this year. The draft 2019 budget includes a hike in the value-added tax from 18 % to 20 %. The finance ministry estimates it would accelerate inflation by 1.3 percentage points in 2019, while the CBR's estimate is about one percentage point.