[MOSCOW] Russian inflation topped forecasts by economists, accelerating to the fastest pace in almost seven years as the country's worst currency crisis since 1998 ignited price growth.

Consumer prices rose 15 per cent in January from a year earlier, compared with 11.4 per cent in December, the Federal Statistics Service in Moscow said today in an e-mailed statement. That exceeded the median estimate of 15 economists in a Bloomberg survey for 13.5 per cent. Prices jumped 3.9 per cent from the previous month.

The surprise increase, which brings inflation to the current level of the Bank of Russia's benchmark interest rate, underscores the challenges facing President Vladimir Putin as the economy teeters on the edge of a recession and investors dump the nation's assets. The ruble's drop to record lows last year stoked price growth that was already on the uptick following Mr Putin's restrictions on food imports in retaliation to US and European sanctions over the conflict in Ukraine.

"Inflation is far from peaking, and its likely range is from 15 per cent to 19 per cent in the spring," Tatiana Orlova, chief economist for Russia at Royal Bank of Scotland Plc in London, said by e-mail before the data release.

"High inflation will cause a sizable contraction in real incomes, damping demand."

The ruble lost almost 13 per cent in January against the US dollar, the world's third-worst performer after the Belarusian currency and Moldova's leu, according to data compiled by Bloomberg. It traded 2 per cent stronger at 66.6850 against the dollar as of 3:23pm in Moscow.

P&G, AvtoVAZ The inflation spike is roiling consumer demand and pushing companies like Procter & Gamble Co and Russian carmaker OAO AvtoVAZ to raise prices. Inflation may accelerate to as much as 17 per cent by March or April, according to Deputy Economy Minister Alexey Vedev. In the past decade, inflation peaked at 15.1 per cent in 2008 and previously surpassed that level in 2002.

The Bank of Russia unexpectedly lowered its key interest rate by 200 basis points to 15 per cent on Friday, easing a surprise increase to 17 per cent on Dec 16 in a bid to shore up the ruble. A slump in economic activity will contain further acceleration in price growth, the central bank said in a statement after the rate decision.

The move didn't contradict the central bank's goal to restrain price growth to 4 per cent in the medium term, according to Governor Elvira Nabiullina.

"Our policy remains tight", Mr Nabiullina said Feb 3.

The Bank of Russia's next move will be another rate cut, according to 30 of 33 economists surveyed by Bloomberg, with 70 per cent forecasting a reduction by the end of April.

The growing cost of food and everyday products is the biggest concern for Russians, followed by the ruble's depreciation and the quality of hospitals and clinics, according to Levada Center's poll published Jan 28.

Policy implications of the inflation data "will likely be muted, as the central bank has signaled that it is mainly focusing on the medium-term inflation outlook," Vladimir Osakovskiy, chief economist in Moscow for Bank of America Corp, said by e-mail. That "could allow inflation to be above the central bank's key rate for some time without triggering new tightening."

BLOOMBERG