They follow current changes in prices, primarily petrol and food prices, and ruble exchange rate fluctuations. The third important factor we took into account is consumer demand. Lending underpins consumption but slowing wage growth constrains a rise in demand. Consumption growth slowed down after a short-term acceleration in November, which was likely associated with preemptive purchases of non-food goods in the run-up to the VAT hike. We can see it from retail sales figures. The rise in consumer activity does not exert pressure on prices. This, among other things, is an important reason of a moderate VAT pass-through to prices. The fourth factor is external conditions. A number of changes which only started to emerge in December, intensified at the beginning of this year. The US Fed and the European Central Bank eased their rhetoric as regards the monetary policy outlook. Improvements were seen in markets’ expectations regarding the negotiations of international trade restrictions. These factors supported emerging market currencies and reduced their risk premiums. We may say that external risks declined in this part. At the same time, geopolitical risks remain in place. Oil prices in the first quarter were higher than projected in the baseline scenario. However, risks are high that oil production will exceed consumption this year. Finally, overall monetary conditions have changed little if at all since the start of the year. Deposit rates have edged higher, while loan rates have stabilised.

In February, a decline was registered in prices of a number of products which had made a considerable contribution to acceleration of food inflation. Furthermore, both domestic and external prices of main crops stopped growing in recent months. Current harvest expectations for this year are favourable, which also limits risks in this part. Petrol and diesel prices were comparatively stable in December-February, and even drifted down slightly in February. This constrained inflation acceleration. Furthermore, the ruble appreciated in the opening months of the year; this had a favourable effect on prices and inflation expectations. Inflation expectations is the second factor we closely monitor. We had concerns about their 1/3  BIS central bankers' speeches  possible response to inflation acceleration. Expectations of professional analysts remain anchored. Analysts understand the temporary nature of this year’s inflation acceleration associated with one-off factors, in particular, the VAT. Therefore, as the Bank of Russia, they forecast a moderate increase in inflation in 2019 and expect inflation to come in at 4% from next year onwards. Households and businesses responded to inflation acceleration more pronouncedly. Expectations of households rose from a historic low of 7.8% seen last April to 10.4% in January, that is returned to their mid-2017 readings. Businesses’ price expectations also jumped considerably. However, household inflation expectations dropped to 9.1% as early as March. Price expectations of businesses also declined. However, they both remain elevated. It is of special note that inflation expectations of households and businesses demonstrated last year that they remained unanchored.