Russian consumer inflation slows to 11% in Feb as rate decision looms

(Reuters) - Annual inflation in Russia slowed in February but remains elevated, data from the state statistics service Rosstat showed on Friday, leaving the central bank with limited room to lower interest rates when it meets next Friday.

In February, annual inflation stood at 10.99%, down from 11.77% a month earlier, the data showed. Analysts polled by Reuters had expected a slowdown to 11.2%.

The Bank of Russia targets annual inflation at 4%.

On a monthly basis, the consumer price index (CPI) rose 0.46% in February after a 0.84% increase in January, the data showed.

Inflation has slowed since accelerating sharply after Russia began what it calls a "special military operation" in Ukraine on Feb. 24, 2022, a move that triggered sweeping Western sanctions and disrupted supply chains.

Rosstat data released on Friday showed consumer price dynamics were unchanged in the week to March 6, compared with a decrease of 0.02% in the week to Feb. 27, the first drop since September.

Separately, the economy ministry said inflation was running at an annualised rate of 9.43% as of March 6, slowing from 11.01% a week earlier.

DEFICIT WORRIES

The Bank of Russia has become more hawkish this year, warning as it held its key rate at 7.5% last month that further widening of the country's budget deficit may compel it to raise the cost of borrowing.

Analysts polled by Reuters do not expect the central bank to be able to lower rates this year as increased budget spending has raised inflation risks, consigning the country's economy to a second year of contraction.

Since the start of the year, prices have risen 1.30%, a slower pace than in the same period of 2022, Rosstat said.

Prices for various food items rose in the week to March 6, but prices for fruit and vegetables dropped by an average of 2%, Rosstat said.

Inflationary expectations for the year ahead among Russian households, an indicator the central bank watches closely, remain elevated, edging higher in February to 12.2%.

Russian households regularly cite inflation as a key concern, with many having no savings, after a decade of economic crises while rising prices dragged living standards down across the country.

Rosstat gave the following details:

RUSSIAN CPI Feb 23 Jan 23 Feb 22

Mth/mth pct change +0.46 +0.84 +1.17

- food +0.79 +1.32 +1.56

- non-food -0.08 +0.21 +0.78

- services +0.72 +1.01 +1.13

Y/Y pct change +10.99 +11.77 +9.15

Core CPI y/y pct change +12.69 +13.72 +9.74

(Reporting by Darya Korsunskaya and Alexander Marrow; Editing by Gareth Jones)