Everything passes, even inflation

Inflationary expectations of the population in March 2023 have returned almost exactly to where they were two years ago, current inflation rates, apparently, are exactly on the chart of movement towards the Bank of Russia’s “target” of 4% per annum and will be significantly lower than this level in April. Nevertheless, the risks of a too rapid recovery of inflationary pressure “in the open” are unlikely to have become significantly less.

Online Help according to the results of the Infom survey for the Central Bank on the state of consumer sentiment and inflation expectations – a traditional document published on the eve of the meeting of the Board of Directors of the Bank of Russia on the key rate, the next one will be held on Friday, March 17. The full data of the Infom poll will appear later (the Central Bank now provides only some data from this opinion poll), however, these data also show that some rise in inflation expectations in February 2023, apparently, was not part of the trend. Inflation expectations one year later fell to 10.7% in March after February 12.2%. Estimates of actual inflation observed by the population in the survey in March 2023 are 14.3%, a month ago this level was estimated by the population at 15%.

Estimates of expected inflation in the Russian Federation in the Infom polls have been de facto stable since April 2022, with the exception of one episode in July, when it unexpectedly dropped to 10.8%. On the contrary, estimates of current inflation, after taking off from the level of 15-17% in the month at the junction of 2021 and 2022, soared to a peak value of 25.1% (in May 2022), after which, with minor deviations, they steadily decreased since the beginning of 2023 slower than in 2022. Recall that the Central Bank, which solves the problem within the framework of monetary policy, does not have a direct choice between estimates of observed and expected inflation. Theoretically, the population’s expectations for the year ahead are more important, but in practice, estimates of current inflation: there are no direct ways to correlate these estimates with current inflation – in the last year there were episodes in which current estimates of inflation by the population were equal to or lower than Rosstat data year-on-year, although usually “apparent inflation” in them is 1.5–2 times higher than estimates of the dynamics of the consumer price index.

At the same time, it is not obvious that the price observations of the population in April reflect precisely what is happening before our eyes, a rapid (due to the base effect) fall in formal inflation indicators “year-on-year” below the “target” of the Central Bank of 4%, and not, for example, the reaction of respondents to depreciation of the ruble in December-January, a set of economic news of the same period in a pessimistic interpretation (estimated as a high current budget deficit, low export earnings in January-February 2023, etc.). On Friday, the Central Bank, according to analysts, will have no other options but to maintain the key rate at the current level. In fact, there is no way to reduce it: pro-inflationary risks are unlikely to have greatly weakened in February, although the current inflation according to weekly data (the latest report is March 7-13) is, in fact, close to zero – the weekly increase and the increase since the beginning of the month are 0, 02%, that is, not at all.

Nevertheless, most of the pro-inflationary factors described earlier by the Central Bank should slowly increase by April-May: how quickly inflationary sentiment will react to this will be quite important information in itself.

But the Central Bank has no reason to increase the rate, at least if during Thursday and March 17 the consequences of the banking mini-collapse in the United States (bankruptcy of the SVB bank) do not spread to the European financial system, for example, in the form of suspension of Credit Suisse operations. But even in this case, it is not certain that the Central Bank of the Russian Federation will prefer to change the rate: the channels for “infecting” inflation with Russia, separated from the world by external sanctions, are really limited, although catastrophic events in world markets will still not leave the Russian market without consequences.

Dmitry Butrin