Russia: Inflation rises to an over two-year high in March
Latest reading: Inflation ticked up to 10.3% in March from February’s 10.1%, marking the highest inflation rate since February 2023, when the base effects from Russia’s invasion of Ukraine kicked in. As a result, March’s figure moved further above the 4.0% target of the Central Bank of Russia (CBR): Fiscal stimulus and a smaller harvest continued to fan price pressures, driving faster rises in food goods and services. Still, non-food goods rose at a softer pace in March. Moreover, the CBR has pointed to signs that labor shortages are easing, likely capping the overall acceleration.
Accordingly, the trend pointed up mildly, with annual average inflation coming in at 9.1% in March (February: 8.9%). Meanwhile, core inflation ticked up to 9.7% in March from February’s 9.5%.
Finally, consumer prices increased 0.65% from the previous month in March, slowing down from February’s 0.81% increase. March’s result marked the softest rise in prices since September 2024.
Outlook: Our panel expects disinflation to be kicking off in Q2 and to continue steadily through Q4 2026 as the base effect strengthens and the effect of a cumulative 500 basis points of rate hikes since H2 2024 permeates through the real economy, tightening credit conditions and incentivizing households to save. Still, sanctions and expansionary fiscal policy continue to fan price pressures in the medium term: Following several upward forecast revisions by our panelists, inflation is now seen hovering around 2024 levels this year—more than double the CBR’s target—but falling below the pre-pandemic 10-year average of 6.9% in 2026. A long-lasting ceasefire easing trade restrictions and labor shortages is a downside risk.
Panelist insight: Goldman Sachs’ Clemens Grafe commented:
“We would expect […] inflation to decline towards 8% by year end. This is to the upper bound of the Bank of Russia’s inflation forecast for year end, but given the current growth and inflation dynamics, we do not believe the Bank of Russia will raise rates further in line with the Bank having removed its hiking bias in the last meeting. However, the lower oil prices are likely to ultimately translate into a weaker Ruble and hence in the short term risks to the rate call are now somewhat skewed to the upside. That said, given a relatively closed capital account and real rates being close to all time highs, we think these risks are more limited than during previous episodes of oil price volatility.”