CMASF experts named four non-obvious reasons for low inflation

In addition to the strengthening of the ruble and the statistical base effect, there were additional reasons for the slowdown in inflation in Russia since the middle of last year and its decline to record lows this spring, experts write. [Центра макроэкономического анализа и краткосрочного прогнозирования] CMASF in the analytical review “Inflation: sometimes a lot, sometimes a little …”.

“On the surface, of course, lies the exchange rate factor, which sharply strengthened in the middle of last year due to compensation for the “flight” of the exchange rate at the peak of the crisis (the dollar and the euro reached their highs in March, when they cost 121.5 and 132.4 rubles on the Moscow Exchange). respectively – Vedomosti), an influx of rental income in the face of a jump in world prices and a shock contraction of imports,” experts say. At the same time, since the end of summer, the exchange rate began to noticeably weaken, and the record for disinflation was set in the first half of this year already, economists remind.

According to Rosstat, in April 2023, inflation reached its lowest level in three years – 2.3% in annual terms. This was against the background of last year’s low base, when prices rose at a double-digit pace against the backdrop of a sharp weakening of the ruble. At the same time, in May 2023, the consumer price index accelerated to 2.51%. In the week of June 20-26, it accelerated again, reaching 3.21% after 2.96% and 2.87% in the past two weeks.

Four unobvious factors could also affect the sharp decline in inflation, experts say. Firstly, this is the general situation of demand deficit in the Russian economy associated with the sanctions shock.

Secondly, the emergence of an excess supply of (mainly raw materials) resources in the domestic market as a result of export restrictions has affected. The temporary decline in producer prices for industrial goods (prices for businesses, which then affect the consumer price index. – Vedomosti) was also affected by the “vigorous actions of the government to overcome the dangerous for the Russian economy formation of domestic prices on the principle of” export parity “. This includes such mechanisms as price dampers, multilateral agreements to contain prices.

The third factor, according to experts, was the withdrawal from the Russian domestic market of a number of global brands and, as a result, their replacement with similar consumer properties, but unbranded goods. This led to the end of “overpaying for the brand”.

The fourth reason was the expansion of demand for money due to the entry into the Russian economy and the ruble space of new regions of Russia. This made it possible to absorb a rather noticeable expansion of the money supply, experts say.

The jump in inflation at the beginning of the crisis – in March – May 2022 – was associated not only with the weakening of the ruble, but also with the action of structural and psychological factors, economists note. In April, price growth reached a peak of 17.8% in annual terms. Moreover, according to them, the contribution of “other factors” was no less significant.

“The population (as in the pandemic) bought a “crisis package” of food and non-food products (cereals, rice, sugar, salt, tea, a number of types of medicines, hygiene products, matches, etc.),” experts explain. The business, in turn, “priced in” not only the already held increase in the rate, but also the expectations associated with the rate itself, as well as with losses due to the expected interruption of logistics.

In addition, due to distrust in the stability of banks, the share of the highly liquid component in the composition of the broad money supply (the total amount of cash in circulation) increased sharply, “crisis-wise”. This increases the inflationary effect of money supply growth, the report notes.

The effect of disinflationary effects is gradually exhausted, while pro-inflationary ones are increasing their effect, so inflation will accelerate in the second half of the year, experts say. According to the CMASF, it will reach 4.7-5.1% by the end of the year.

According to the official forecast of the Ministry of Economic Development, inflation by the end of the year will be 5.3%, and in 2024 it will return to the target of 4%.

According to the forecast of the Central Bank, in the II quarter inflation will be at the level of 3.6%, and by the end of the year it may reach 4.5-6.5%. Inflation will exceed the target level of 4% in the third quarter, Kirill Tremasov, director of the Central Bank’s monetary policy department, said on June 30.

According to Russian President Vladimir Putin, inflation in Russia by the end of 2023 will be about 5%, which, according to him, is a normal level for the country’s economy.