Still to come: when to expect lower inflation in Russia
The Central Bank of the Russian Federation reported that by the end of 2024 inflation is expected to be in the range of 8.0-8.5%. At the same time, inflation expectations of the population remain elevated. Russians believe that double-digit rates of price growth will persist for several years. When inflation in Russia will begin to decline steadily and why the high rate has a limited impact on it - in the material "Izvestia".
A few more years
In late October, the regulator raised the key rate to a historically high level of 21%. Domestic demand is declining weakly, and additional budget expenditures and the associated expansion of the budget deficit have pro-inflationary effects, the regulator explained.
According to Rosstat, consumer price growth slowed to 8.54% in October from 8.63% in September. At the end of 2024, the Central Bank expects inflation in the range of 8-8.5%. However, according to a survey conducted by the company "inFOM" at the request of the Bank of Russia, Russians expect double-digit inflation to persist for several years.
In November, the overall median estimate of inflation expected by the population for the next 12 months remained at the level of October - 13.4%. The median of long-term expectations for five years decreased and amounted to 11.7%. Annual inflation observed by the public remained unchanged at 15.3%.
Demand is not catching up
Analysts name several reasons why the key rate now has a limited impact on the growth rate of consumer prices.
Analysts still consider the main factor of inflation acceleration to be the fact that the supply of goods and services lags behind consumer demand. This can indeed be corrected by lowering demand, which is done by raising lending rates and limiting income growth.
However, in our case, raising interest rates does not help yet: real incomes are also growing due to the acute shortage of workers in the country. Therefore, it is necessary to expand the supply, which has been sharply reduced due to sanctions, i.e. to increase domestic production and develop parallel imports, explains Vladimir Chernov, analyst at Freedom Finance Global.
It is difficult to expand
On the other hand, the expansion of production also faces the pressure created by the tight monetary conditions in the economy.
- It is extremely difficult for manufacturing companies to increase production capacity, especially since the average margin level of Russian companies is very far from the current cost of money, i.e. the key rate. Accordingly, it seems as if the manufacturer is left with two basic scenarios - to raise the price or reduce supply, and this in turn will only accelerate the rate of price growth, - points out Maria Ivaneeva, Director of Trade Credit Insurance at Mainsgroup.
Staff shortage provokes wage growth, which accelerates inflationary processes. At the same time, the economy is slowing down due to the inaccessibility of borrowed funds. Some needs can be covered by own capital or investors' money, but without available credit it will not be possible to really accelerate the economy, adds Ekaterina Avdeeva, a member of the general council of "Business Russia".
Weakening of the ruble
The weakening of the ruble, which leads to an increase in prices for all imported goods and services in ruble terms, adds to the problems.
In the last five trading sessions alone, the dollar has appreciated against the ruble by about 12%, which means that imported goods in rubles will have to increase in price by about the same amount in the near future, after which prices for similar domestic goods and services will rise, says Vladimir Chernov.
The fall of the ruble is primarily a consequence of the growth of geopolitical risks: the market reacts very keenly to any political news. Because of this, rather sharp jumps in quotations are not excluded in the next month.
Inflation of demand and costs
The nature of Russian inflation is dual: it is a combination of demand and cost inflation.
- The monetary stimulation of the Russian economy in 2023 and 2024 has led to a strengthening of demand inflation. In an effort to curb high consumer activity and the level of borrowing by households and enterprises, the Bank of Russia repeatedly announced the need to raise the key rate in 2024. But this only strengthened expectations of the rising cost of credit resources and stimulated loans, and thus consumer demand," explains Svetlana Sazanova, Associate Professor at the Department of Institutional Economics at SUU.
The deep causes of inflation in Russia lie in the inflationary expectations of economic agents, based on the understanding that domestic producers can not satiate aggregate demand, and sanctions, currency fluctuations always lead to higher prices of imported goods in the future, emphasizes the economist.
Budget deficit
Inflation is spurred by the budget deficit, in 2024 it is projected at 3.3 trillion rubles, or 1.7% of GDP. In 2025, the budget is again planned to be deficit with an increase in defense and security spending.
- With a deficit budget, the Central Bank is forced to "print" money, and, in fact, because of the increase in the money supply, which comes as a result of the increase in the money supply is used and spent, and inflation rises, that is, the money supply should remain at the same level. Conditionally, if the money was introduced 20% this year, subsequently these funds will end up in goods, and prices will rise again, - explains Yulia Kuznetsova, investment advisor in the Central Bank register.
What's next
Analysts expect some slowdown in the growth of consumer prices in the country as early as 2025.
- At the end of 2024, annual inflation in Russia will be 9.2-9.4%, if the dollar exchange rate stabilizes in December and rolls back to the area of 100-105 rubles. If it continues to grow, the forecast will be revised upward, but next year the growth rate of consumer prices in the country will still slow down. Therefore, we do not expect double-digit inflation for several years," said Freedom Finance Global.
At the same time, as economists emphasize, stabilization of the "playing field" in the economy is important for reducing inflation expectations: first of all, relatively stable interest rates (their constant increase, on the contrary, creates excessive inflation expectations) and industrial-oriented government policy.
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