Chart of the Week: Russian inflation begins to rise

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In contrast to many other countries, Russian inflation edged higher in March. Weaker demand on the back of lockdown measures and falling oil prices contributed to the declines in many countries. However, in Russia, falling oil prices have prompted a sharp depreciation of its currency, the rouble, whilst the country’s relatively late lockdown means the dampening of demand (and subsequent drag on inflation) will be felt later than in many other countries.

With petroleum products accounting for more than 50% of Russia’s exports, the value of the rouble is closely linked to the price of crude oil. Consequently, the recent trouble in the oil market has contributed to a sharp depreciation of the rouble, and an increase in import prices. The effects of strangled global demand and a supply war between Russia and Saudi Arabia has pushed the price per barrel into unprecedented territory, even seeing US prices turning negative in April as traders struggled to offload WTI contracts nearing their delivery date.

Since the start of the year the rouble has lost around 20% of its the value compared to the dollar. Historically, changes in CPI growth have lagged changes in the exchange rate by about one quarter, so we expect the upward pressure on inflation to continue into the second half of the year. Russia now has the second highest rate of new COVID-19 cases globally, with almost 10,000 new cases on Saturday last week, so it would not be surprising if lockdown and social distancing measures were in place there for the foreseeable future. This would most likely have a dampening effect on inflation, but, with imports accounting for around 25% of GDP, currency effects are likely to dominate.

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