Inflation deceleration is on track, budget revenues to be trimmed

RUSSIA ECONOMICS - In Brief 12 Jun 2025 by Evgeny Gavrilenkov

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Rosstat reported that in May, inflation was almost the same as in April, reaching 0.43% m-o-m. The number was a bit higher than we expected a few weeks ago based on weekly inflation prints. Some of the difference between cumulative inflation based on weekly flash estimates and the official monthly inflation stems from the fact that the monthly figure is based on a broader consumption basket. Y-o-y inflation fell below 10%, and the YTD inflation reached 3.56%.Rosstat also reported that in the seven days ending on June 3, inflation remained low (0.03% w-o-w) and the MTD and YTD tallies climbed to 0.04% 3.60% prompting a further deceleration y-o-y in June. We expect it to come down to about 9.5% y-o-y by the end of the month. Hence, the CBR will have more evidence to cut the key rate – possibly more aggressively next time than it did last week. There is growing evidence that federal budget revenue flow is moderating given that in May, oil-and-gas (O&G) revenues appeared the lowest in more than two years. The only way to correct this situation is with a weaker ruble (we discussed this issue in our recent report). Non-O&G revenue flow is also gradually weakening given that in 5M25 the government collected 42.9% of the amended yearly target. Stronger revenue flow in 1Q25 enabled the government to finance 42.9% of the revised target. As we expect inflation to cool further while economic growth appeared unimpressive in 4M25, cutting the key rate and taking some other steps aimed at weakening the ruble seems to be a must. A too-strong ruble could even trim exports of such goods as refined oil products.