The Russian ruble strengthened against its US counterpart midweek on inflation coming in less than what the market had anticipated. The ruble has been come under intense pressure so far this year amid rising inflation and the conflict at the Russia-Ukraine border.
According to the Federal State Statistics Service (FSSS), the Russian annual inflation surged to 8.73% in January, up from 8.39% in December. But the reading came in below the median estimate of 8.8%.
Inflation in Moscow is now running at its highest pace since January 2016 and is double the central bank’s target rate of 4%.
Russia is facing upward pressure on fruits and vegetables, construction materials, electronics, and services.
On a month-over-month basis, Russia’s consumer price index (CPI) rose 1% in January, slightly less than economists’ expectations of 1.1%.
Retail sales ballooned 5.4% year-over-year in December, higher than the market forecast of 3.4%. This is also up from the 3.1% gain in November.
Real wage growth surged 3.4% year-over-year in November, while the unemployment rate remained the same at 4.3%. Business confidence expanded to 2, and the monthly gross domestic product (GDP) climbed 4.3% in December.
Earlier this week, the Bank of Russia’s foreign exchange reserves was held steady at $630 billion. Vehicle sales tumbled at an annualized rate of 3.7% last month.
Global financial markets are monitoring the situation at the Ukraine-Russia border. Investors have been pleased by the diplomatic efforts as of late, although the US administration has warned that a military conflict is imminent as an invasion could happen “any day now.”
Whatever the case, financial analysts have warned that any engagement could have far-ranging effects and might impact the global economy, especially on the energy front.
“Despite Europe’s implicit policy to reduce its dependence on Russian gas – as demonstrated by the significant build-up in LNG import facilities on Western Europe’s coast in recent years – Russia plays a pivotal role in helping meet the region’s gas needs. As a result, any military conflict could have serious ramifications for European gas supply,” says Sindre Knutsson, vice president for gas and LNG market analysis at Rystad Energy.
The USD/RUB currency pair dropped 0.7% to 74.5132, from an opening of 75.0383, at 18:25 GMT on Wednesday. The EUR/RUB declined 0.59% to 85.17, from an opening of 85.68.