Time to slow down: expected inflation fell for the first time since September
In February, inflation expectations of the population in Russia decreased from 14 to 13.7%. At first glance, a small reduction, but it was the first since September 2024. Together with some data on the slowdown in real weekly inflation, this may be the first signal of stabilization of price growth, and, therefore, the easing of monetary policy that many people expect. Experts interviewed by Izvestia, however, believe that it is too early to draw such far-reaching conclusions.
For the first time in six months
According to the InFOM survey commissioned by the Central Bank, inflation expectations have been growing for five months in a row. In February, for the first time in this time, there was a pause. Note that this is only the second time expectations have fallen over the past year.
The picture as a whole looks a little less unambiguous. A rather alarming trend in February was the increase in the share of people who have no savings. Compared to January, their percentage increased from 56 to 64 for reasons that are still difficult to understand. At the same time, for this category of the population the expected inflation (which is usually higher due to the fact that the consumer basket of the poorer strata of the population often becomes more expensive faster) fell by only 0.2 percentage points, while for those who have savings - by 1.3 percentage points at once.
An even more alarming observation was the fact that the observed inflation of citizens who do not have money in their accounts or "under the mattress" continued to grow, while for those who have money saved - sharply decreased. This divergence, coupled with the rising share of non-savers, could lead to higher expectations in the near future.
Why inflation expectations are needed
Why is measuring inflation expectations so important in the first place? The fact is that the economy operates in human society, and people's assessment of the future can directly affect the present. This was the opinion, in particular, of the authoritative economist of the second half of the 20th century, Robert Lucas, who generally formulated the theory of rational expectations. If we explain the influence of expectations in the simplest way, the core of modern views is that those who expect high inflation will spend money more actively, increasing aggregate demand. Since the 1980s, inflation has been targeted, not least by using the inflation expectations indicator. Many countries have been quite successful in this area, and Russia managed to bring inflation to the long-term target of 4% before the 2020 pandemic.
To be fair, not all scientists agree that inflation expectations play a decisive role in price changes. For example, a study of economists at the U.S. Federal Reserve of 2021 notes that such perceptions have neither theoretical nor empirical basis. Thus, the behavior of companies that raise prices is primarily based on the growth of real costs. However, such views are still not mainstream today.
"The first swallow does not make the spring."
To what extent can we judge from the current change about the turning point in the population's perception of price growth and, accordingly, about inflation stabilization? Anton Tabakh, chief economist of the rating agency Expert RA, believes that "the first swallow does not make the spring".
- The first decline is a good sign, but it does not guarantee that the ice has broken. Inflationary expectations are still too high and strongly depend on the volatile currency market and news background. At least a quarter of decline is needed to make it clear that this is not a random outburst, but a trend," he believes.
According to Olga Belenkaya, Head of Macroeconomic Analysis at Finam, the Central Bank's expectations are the most important indicator, which the bank is guided by in its macroeconomic policy.
- According to the regulator, high inflation expectations increase the inertia of stable inflation. And with high and unanchored expectations, any temporary supply shock leads to pro-inflationary behavior of economic agents. Central Bank Deputy Chairman Alexei Zabotkin said that "a reduction in the Bank of Russia rate without a synchronized reduction in inflation expectations of all economic agents is highly unlikely," the Izvestia interlocutor said.
It is obvious that the normalization of the geopolitical situation causes positive expectations in general and in terms of price growth, said Vladimir Klimanov, Director of the Regional Policy Center of the IPEI of the Presidential Academy. However, according to him, it should be remembered that other factors also exert pressure on inflation. In particular, there is still a high level of budget expenditures, creating its deficit, the existing supply and demand for a number of goods are not fully balanced, and many other things.
Let's talk about the rate in April
We are now seeing real inflation slowing down a bit as well. Let's say it amounted to 0.16% in the last week. That's still a lot, but it's already significantly less than the threatening numbers at the beginning of the year, when weekly price growth was as high as 0.35%. Annual inflation is approaching 10%, but the base effect plays a role here. Can a slowdown in real inflation and inflation expectations simultaneously lead to a reduction in the key rate of the Central Bank?
According to Evgeny Romanenko, Director of S+Consulting, it is premature to talk about the possibility of the regulator changing its monetary policy:
- At the last meeting, the Central Bank kept the key rate at 21%, while the Bank of Russia's inflation forecast for 2025 increased from 4-5% to 7-8%. The increase in the inflation forecast was a response to a combination of several macroeconomic factors, including growth in domestic demand, foreign economic risks.
Ilya Fedorov, Chief Economist at BKS Investment World, notes that the decline in expectations must be sustained and more pronounced for the Central Bank to decide to lower the key rate.
- Inflation also remains high. Now we see a seasonal slowdown in prices after the traditional price rise in January. On an annualized basis, inflation remains around 10%. In seasonally smoothed version, the picture is the same - double-digit growth rates, it is too early to talk about a decline," the expert believes.
In turn, Anton Tabakh noted that inflation forecasts have just increased, inertia is high, and the increase in housing and utilities tariffs will accelerate price growth.
- It is strange to even talk about rate reduction yet. We can argue about when the Central Bank will soften its rhetoric, but it will definitely not happen before April," he believes.
According to Olga Belenkoy, if the trends of ruble strengthening, slowdown in price growth and lower inflation expectations prove to be stable, they may bring the moment of the key rate reduction closer.
- However, we should not expect it at the next (March) meeting. As it follows from the Central Bank's signal and Elvira Nabiullina's statement, it will decide whether to keep or raise the key rate. The latest data, in our opinion, are in favor of the conclusion that the achieved level of rigidity may be sufficient, i.e. no further rate hike is required. But for the transition to a reduction, more time should pass so that the Central Bank is convinced of the stability of the trend to reduce overheating in the economy and slowing inflation," the expert said.
According to the analyst's estimates, the soft scenario of the Central Bank suggests the possibility of starting to reduce the key rate from the April meeting with an exit to 16% by the end of the year.
- The hard scenario does not exclude the possibility of its temporary increase to 23% with the end of the year at the current level. We still maintain our expectations of the rate peak at the current level, we believe it is possible to start lowering the rate from June-July (the earliest possible date - April) with reaching 17-18% by the end of the year, - concluded Belenkaya.
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