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. Last Updated: 07/27/2016

Inflation Target in Trouble as Consumer Prices Rise by 0.8%

The consumer price index rose by 0.8 percent month on month in September, the State Statistics Service said Friday, significantly exceeding analysts' expectations.

The CPI rise follows massive liquidity injections into the banking sector by the Central Bank and suggests that Russia may significantly overshoot its annual inflation target of 8 percent.

"This is a horrible figure. I do not remember a time when expectations and reality were so different. It means it will even be difficult to have the same inflation as last year's 9 percent," said Natalya Orlova, economist at Alfa Bank.

The September rise brings price growth in the first nine months of the year to 7.5 percent, for the first time in 2007 exceeding last year's corresponding figure. The CPI grew by 7.2 percent over the same period in 2006.

"This is a very unpleasant surprise for the government. It puts it in a situation when measures aimed to support liquidity levels in the banking system contradict anti-inflation measures," said Yulia Tseplyayeva from Merrill Lynch.

The country had 9 percent inflation in 2006, after raising the annual target and introducing tough anti-inflation measures, including ruble appreciation. Kremlin economic aide Arkady Dvorkovich said last month that an overshoot of last year's figure would represent policy failure.

The statistics service said core inflation, an indicator cleared of seasonal and volatile factors, rose 1.6 percent in September. The spike in core inflation suggests monetary factors were the main culprit behind the surprisingly high figure. Inflation data are closely watched by investors trying to guess the Central Bank's action on the ruble rate.

The rise also coincided with a Cabinet shake-up, in which Economic Development and Trade Minister German Gref lost his job, while the Cabinet's leading fiscal hawk, Alexei Kudrin, was promoted to become a deputy prime minister.