Money downtime: price expectations of enterprises in Russia have increased
Price expectations of Russian enterprises increased in December, having reached a local maximum, according to the operative note on the results of the survey of companies by the Bank of Russia. In November, this indicator increased for the third month in a row and reached a local maximum since May 2022. Price expectations were significantly above the values of 2017-2019, when inflation was close to the target, the regulator emphasized. What such results are related to and whether they pushed the Central Bank to further tighten the monetary policy (MP) - in the material of "Izvestia".
Reasons for expectations
In recent months, the price expectations of domestic enterprises have been growing, and rapidly, and there are quite logical explanations for this, said "Izvestia" Advisor to the President of the Moscow Association of Entrepreneurs, an expert of the State Duma and the Central Bank of the Russian Federation, Academician of the Russian Academy of Sciences, Associate Professor of the State University of Russia Konstantin Andrianov.
- The growth of price expectations and its escalation is a direct consequence of the ongoing price growth in the Russian economy and its intensification. This is what is called a chain reaction, a price spiral: price growth provokes the growth of price expectations, which, in turn, provokes the growth of prices themselves. But why do prices themselves continue to rise in Russia? Prolonged and growing inflation is a direct result of the prohibitively high key rate (and, as a consequence, barriers to attracting credit resources to expand production and make it cheaper), - said Konstantin Andrianov.
Trying to fight the so-called demand inflation by raising the key rate, the Bank of Russia provokes an even greater increase in cost inflation, the expert believes.
- By raising the key rate, the Central Bank only increases credit rates and production costs of industrialists and, as a consequence, adds oil to the "inflationary fire" (now the rates on bank loans for manufacturing companies reach 30% or more, which is six or more times higher than the average profitability in the Russian manufacturing industry), - explained the expert. - And this is confirmed by Rosstat, according to whose data, the producer price index of industrial goods (which is one of the indicators of cost growth in the economy), has been growing almost the entire current year (last November increased by 1.5% compared to October) and continues to grow.
In the period from July 2023 to October 2024, the Bank of Russia has already raised the key rate eight times, increasing it almost three times, recalled Konstantin Andrianov.
The growth of inflation expectations of producers is associated with the growth of costs, primarily due to the shortage of staff in the market, high growth of nominal wages (in the first nine months of 2024 they increased by 18.0% YoY), as well as the possibility of shifting the increased costs to consumers, added Yuri Perevyshin, Senior Researcher at the Center for the Study of Central Banking Problems of the IPEI Presidential Academy, in a conversation with Izvestia.
- Consumers still have a high demand for both goods (retail trade turnover growth in the first 10 months of 2024 amounted to 7.5% yoy) and services (in the first 10 months of 2024, the volume of paid services to the population grew by 3.4% yoy), supported by growing incomes and loans," she explained.
Such price expectations of enterprises are related to approximately the same thing as the growth of inflationary expectations of citizens - in particular, staff hunger, supply constraints, as well as rising costs support the inflationary wave, Anton Tabakh, chief economist of Expert RA rating agency, confirmed to Izvestia.
- It is important that the surveys of enterprises rather refer to estimates of future prices (demand) for their own products, and therefore in many respects "mirror" consumers. It is no less important that goods (both industrial and raw materials) are more significant in this index and services are less significant than for consumers, - he emphasized.
The impact of global trends, such as rising commodity prices and intensified sanctions pressure, contributes to the increase in costs of enterprises, Alexander Shneiderman, Head of Sales and Client Support Department at Alfa-Forex, noted in a conversation with Izvestia. Stable domestic demand against the background of business adaptation to the new realities also pushes companies to revise prices.
Labor shortage, growth of monopoly tariffs, ruble devaluation and high funding rates spiral inflationary expectations not only for the population, but also for corporations, Mikhail Zeltser, stock market expert at BKS World of Investments, noted in a conversation with Izvestia.
- Negative price trends in the economy force the Central Bank to act. The key rate is already high, and on Friday it may be even higher. The most probable +200 b.p. to 23% per annum will reflect the fears of enterprises," he believes.
Prospects for change
The growth of price expectations of enterprises will be another argument in favor of raising the key rate, said Yuri Perevyshin. It is companies that set the price of their products, and their inflation expectations in the conditions of a positive output gap deserve more attention from the regulator compared to the situation when consumer demand stagnates.
- In the current situation, the only way to ensure sustainable price stability is to continue structural transformation of the economy on the basis of building a supply-side economy. At the same time, the formation of a supply economy requires a set of measures to provide Russian companies (and, above all, the real sector of the domestic economy) with access to financial resources at affordable rates," emphasized Konstantin Andrianov.
In this case, according to him, the expansion of the supply of goods and services will contribute to the establishment of a balance between supply and demand (the necessity of which the leadership of the Bank of Russia speaks about), thus ensuring price stability in the long term.
- The current situation in the Russian economy requires a fundamental revision of the current policy framework of the Bank of Russia and its reversal in the direction of cardinal easing (reduction of the key rate to the level of 4-5% - within the profitability of most industries and the inflation target. This is a necessary measure to curb inflation and prevent the decline in industrial production and the entire Russian economy, which in the current conditions of anti-Russian military-political and sanctions aggression is a matter of preserving political and socio-economic stability in Russia, and ensuring economic security and sovereignty of the country, - said Konstantin Andrianov.
December price expectations of enterprises close to the levels of March-April 2022 are not a good signal from the point of view of monetary policy, Dmitry Kulikov, director of the group of sovereign and regional ratings of ACRA, told Izvestia.
- These expectations are built on companies' assessment of the dynamics of their own costs (also at a local maximum), the costs of other companies, and the forecast that these costs will be transferred to final prices. I would call price expectations of enterprises one of the three main indicators of inflation expectations, so I think that the growth of this figure will be discussed at the meeting on the key rate and indeed, rather in the context of tightening, - says the expert.
"Izvestia" sent a request to the Central Bank, but at the time of publication no response had been received.
