► Core C-inflation is down again, and this is the seventh month in a row. Despite temporary exchange rate volatility and level hikes, the passthrough has been weakening.
► Seasonally-adjusted C-core stands at around 0.5 monthly. That implies around 12 percent within 6 months.
► Because there are base effects ahead, the headon will also fall. It will fall drastically in September.
► We may see 11-12 percent in early October as head-on CPI goes, only to head north again thereafter. But in the end inflation is on a declining trend.
► Non-processed food helped this time, by subtracting 0.3 points. Annual food inflation is still very high at 28.4 percent. Food also will be decisive in the coming months.
► Services are sticky now, but this is only to be expected. As the pass-through dies off, goods prices will be tamed first, and services should follow. This is dependent on exchange rate stability obviously.
► Summing up, we will see fluctuations in the annual unadjusted CPI in the coming months. One ought to distinguish elements that are important from those that are not, and the CBRT shouldn’t hurry to cut rates.
► Cutting rates would rather be counter-productive given the current financial outlook. After all, I am not sure the fall will continue after the base effects.
► However, low double-digits is a possibility, and a business cycle chronology-based economic recovery may well be on its way. Only temporarily, and only on paper though.
► The ugly reality points to a prolonged stagnation, with low positive growth in H2 and in 2020, and a lower but rising inflation after the base effects of September and October.