Analysts argue over reasons for short-term crackdown in consumer prices

Leading data from Rosstat continue to point to the acceleration of inflation in the last weeks of July, which was observed virtually everywhere, seriously affecting non-food products. The reasons for this acceleration are the rapid growth of private consumption and the weakening ruble. Analysts argue to what extent each of these factors will be responsible for the fact that by the end of this year inflation will rise to 6%.

Inflationary pressure continues actually frontally, according to analysts’ estimates based on weekly data on consumer price dynamics as of July 31. In annual terms, consumer price growth will continue to accelerate, exceeding the Central Bank’s target of 4%, according to the Ministry of Economy, amounting to 4.4% at the end of the month against 4.2% on July 24. Although weekly inflation in the week from July 25 to July 31 slowed to 0.13% from 0.23% a week earlier. The ministry notes that the main contribution to the slowdown in inflation was made by the most volatile components – food, where prices for fruits and vegetables resumed (-0.52%), and a decrease in prices in the service sector (-0.09%) against the backdrop of lower prices for air tickets and health resort services.

Meanwhile, 70% of this slowdown is explained by a change in the sign of the contribution of fruits and vegetables, which during this period becomes cheaper seasonally, Raiffeisenbank analysts specify. “In a recently published report on monetary policy, the Central Bank notes that price increases are accelerating for both services and goods. Recall that in the last year, the main rise in prices was for services, ”they note, considering the average monthly inflation, seasonally adjusted, of 0.9% in July – this is the maximum since March-April 2021, while annual inflation as of July 31 is estimated at 4.6%. The authors of the Solid Numbers Telegram channel also believe that the slowdown in inflation in the last week of July was due to volatile categories – fruits and vegetables and air travel, and the average deflation in the last week of July in the last seven years was 0.06. At the same time, core inflation measures, on which they rely, continued to accelerate. Thus, seasonally adjusted, median inflation rose to 0.1% from 0.07% the previous week; inflation without fruits and vegetables and air travel remained unchanged at 0.23%; the share of goods, the price indices of which grew in the last week of July, increased to 78% from 74% a week earlier, and the share of goods, the price indices of which grow faster than the target 4%, to 63% from 56%, respectively. As a result, the growth rate of consumer prices, adjusted for seasonality and calendar factors and in terms of the year, reached 10% at the end of July.

Economists differed in their assessments of the factors that are behind the acceleration in prices. Raiffeisenbank is convinced that rising inflation across a wide range of consumer basket items indicates that “consumer demand is generally close to recovery and supply adjustment is starting to heat up prices,” although both Rosstat data and independent analysts’ estimates indicate that the volume consumer demand has already exceeded the level of 2021 and broke a historical record (see Kommersant of July 2). The weakening of the ruble also acts as a pro-inflationary factor, but, in the opinion of the bank’s analysts, it is not decisive now. In turn, economists from the HSE Development Center, in the latest issue of comments on government and business, dedicated to the discussion of inflation and monetary policy for the first half of the year, note that the transfer of foreign exchange costs to prices was delayed due to the large volume of reserves formed at a low exchange rate, and until it fully manifested itself. According to experts of the center, as of the end of July, the weakening of the ruble against the dollar and the euro by about 30% compared to the beginning of the year will add 1.5-3 percentage points to annual inflation.

The Development Center expects that by the end of the year inflation will reach 6% (food – 4.8%, non-food – 6.4%, in services – 6.6%), taking into account the actions of the Central Bank on monetary policy (the HSE expects an increase the key rate to 10% by the end of this year), and it can return to the regulator’s goal of 4% only by the end of 2024.

Artem Chugunov