In September, inflation grew by 0.6%, in annual terms (compared to September 2011), jumping to 6.6 from 5.9% in August. The main reasons are the continuing growth of food prices, the second round of indexation of housing and communal services tariffs, and the low base effect (inflation was zero a year earlier). Since the beginning of the year, prices have grown by 5.2%.

The September jump was not unexpected: the Ministry of Economic Development predicted growth of 0.5-0.6%, and it could be the same in October, said Deputy Minister Andrei Klepach. The department raised its forecast for 2012 from 5-6 to 7%, the Ministry of Finance has the same expectations, and the Central Bank believes that inflation will be slightly higher than its target of 6%.

The core price index, an indicator of monetary inflationary pressure, also accelerated in September (from 5.5 to 5.7% year-on-year).

In September, the Central Bank raised all key interest rates by 0.25 bp at a time, despite the slowdown in economic activity in July-August. Recently, First Deputy Chairman of the Central Bank Alexey Ulyukayev said that the risks of accelerating inflation are higher than the risks of an economic slowdown. But experts do not expect a repeat of the total rate hike following today's Central Bank meeting: according to the consensus of Reuters and Bloomberg, the regulator will take a break; 4 out of 12 analysts surveyed by Reuters expect an increase in deposit rates. But analysts have no doubt that the Central Bank will undertake another series of rate hikes before the end of the year.

In September, business activity in industry increased; oil and monetary easing by the ECB and the Fed will support the Russian economy, but this could be a temporary factor, argues Alexander Morozov from HSBC: rising prices are having a negative impact on consumption, and the growth of lending that worried the Central Bank is already declining. The economy is slowing down, while inflation will accelerate simply due to the base effect – even “standing still”, it will grow to 7.5% by the end of the year, Morozov calculated. The peak will be in the first quarter of 2013, raising rates during this time by more than 0.25–0.5 bp would be a mistake, agrees Dmitry Polevoy from ING.

Inflation has gone beyond the limits