Peak in tension: inflation will not start to fall until spring 2025 at the earliest
Inflation will decline only by the spring of 2025, according to the Izvestia consensus forecast. The other day, Central Bank head Elvira Nabiullina, speaking in the State Duma, said that the country's economy is now at a turning point: although price growth has slowed down slightly (to 8.5% in October), it is not yet a sustainable process. Inflation is being pressured by sanctions, which are making imports more expensive, the shortage of personnel, which is causing wages to grow faster than before, and the budgeted increase in tariffs for housing and utilities and transportation. Experts believe that the high key rate is the only factor capable of slowing down price growth. However, its effect is reflected in the economy with a lag of two or three quarters. It is by spring that the reaction to the tightening of the Central Bank's policy, which began in the summer of 2024, will be seen.
When inflation will start to decline
Seven out of twelve experts and market participants interviewed by Izvestia believe thata steady decline in inflation will not start before the second quarter of 2025. Three of them believe that this will happen only in the second half of the year. Another two analysts pointed out that price growth has already started to slow down.
- Inflation is indeed gradually declining from its peak in July 2024 (from 9.1%) to 8.5% in October. But this trend is still unsustainable. Also, inflation expectations of the population and business remain at a high level, which does not allow us to speak confidently about risk reduction, - Denis Popov, managing expert of the Center for analytics and expertise of PSB, is sure.
The economy is on a certain "inflation plateau", he emphasized.
Theeconomy is now at a turning point, said the head of the Central Bank Elvira Nabiullina at a meeting in the State Duma on November 19. According to her, today's positive processes with some lag will lead to a slowdown in the current inflation, and then a break in annual indicators will be seen.
However, according to the Bank of Russia's report on "Consumer Price Dynamics", inflation slowed down in October due to a decline in the cost of tourism and passenger transportation services. But at the same time, most indicators of steady price growth increased by the previous month.
According to the Central Bank forecasts, annual inflation at the end of 2024 is expected at the level of 8-8.5% per annum. At the same time, some experts believe that the figure may be higher. Price growth may reach 9.2-9.4% in December, according to Freedom Finance Global analyst Vladimir Chernov.
The assessments of the experts interviewed by Izvestia regarding the timing of inflation reduction are mostly not so optimistic: they believe that a stable trend will be seen later, at least in the second quarter of 2025. Right now, there are too many factors that put pressure on prices.
Why inflation remains high in Russia
- The main driver of inflation in Russia today is external restrictions. Because of them, supplies of goods to the country are becoming more expensive, as logistics costs are increasing," explained Freedom Finance Global analyst Vladimir Chernov.
Currency risks are also coming to the fore - since August, the ruble has depreciated by 15%, which has made imports more expensive, said Vladimir Yeremkin, a researcher at the IPEI Structural Research Laboratory of the Presidential Academy.
In addition, the slowdown in inflation is constrained by the growth of budget expenditures, believes Olga Belenkaya, head of macroeconomic analysis at Finam. The more the government spends, the more money in the economy, which accelerates prices. Another reason is the labor market deficit, she added. Because of it, companies poach employees, raising their salaries - all this also raises the overall price level.
Another negative factor is a weak harvest in 2024: as of November 1, the harvest of major crops decreased from 2% to 15% compared to last year, Izvestia wrote earlier.
- There are still risks that inflation may remain elevated for a long time. Among them are accelerated indexation of tariffs, increased inflation expectations, deviation of the economy upward from the trajectory of balanced growth," Sovcombank chief analyst Mikhail Vasiliev added.
How high key rate affects inflation
Now the action of the rate is the only significant factor that can restrain the growth of inflation. Raising the key rate helps to restore the balance of supply and demand in the economy, believes Evgeny Koshelev, Director of Market Research and Strategy Office of Rosbank. Due to high rates, people spend less on borrowed funds and save more, because of which enterprises stop inflating prices for their products, as they need to maintain the level of sales.
The key helps to slow down the rate of credit growth, but corporate lending in Russia is still growing at a high rate, agrees Vladimir Chernov.
"Therate effectively counteracts inflation. If we had left it at the level at which it was until the middle of last year (7.5%), inflation would have long ago been not just double-digit, but could well have reached 20%, 30%, and quite possibly more," Elvira Nabiullina said in the State Duma.
Inthe spring of 2025, inflation will be affected by the previous rounds of tightening monetary policy, said Vladimir Evstifeev, head of analytical department of Zenit Bank. He added: there are two or three quarters between the increase of the key rate and its impact on the economy.
The summer tightening of monetary policy (the Central Bank raised the rate from 16% to 18% in late July) will just manifest itself in the first quarter of 2025, he believes.
Tight monetary policy should cool demand, but it may also lead to the fact that businesses will reduce the supply of goods and services - in particular, those who can not take advantage of state support, said Olga Belenkaya of FG Finam. She summarized: in the conditions of unprecedentedly tight monetary policy, there is no certainty about the state in which the economy will come out of overheating.
According to the Central Bank's expectations, the tight policy will reduce inflation to 4.5-5% next year and then stabilize it at around 4%. The analysts interviewed by Izvestia also agree with this optimistic forecast: they believe that it is quite realistic to bring down price growth to 5% by the end of 2025.
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