Inflation expectations increased from 11.1% in July to 11.5% in August

The data of the August Infom surveys on inflationary expectations and consumer sentiment published by the Bank of Russia make it possible to more accurately judge the reasons that forced the Central Bank to raise the key rate to 12% per annum at an extraordinary meeting of the board of directors on August 15. It follows from the survey data that inflation expectations of the population, even if the Bank of Russia had access to them at the time of the decision, could hardly be the reason for such a decision – they grew, but very moderately.

As follows from the published FOM survey data, inflation expectations in 12 months – a key indicator for the Central Bank – increased from 11.1% in July to 11.5% in August. The increase – 0.4 percentage points – was less than the July increase of 0.9%. The main increase was provided by the group of the population without savings – in July, the expectations of its participants for inflation in a year amounted to 11.8% of the increase in the consumer price index (CPI), in August – 12.2%, the increase in expectations for the group was also less than in July. On the contrary, the group with savings – this is a smaller half of the respondents – expected in July the subsequent annual increase in the CPI of 10.2%, in August – 10.4%: the growth rate of the indicator of expectations for the year ahead decreased five times over the month. Finally, indicators of long-term inflation expectations, five years ahead, have not changed at all – both in July and August 2023, the Infom polls gave one indicator, 9.5% per annum.

The devaluation of the ruble in the summer took place quite smoothly, at least not all at once – and in mid-August, when polls were conducted for the Central Bank, such results are rather surprising: it is commonly believed that exchange rate fluctuations in Russia are the number one factor for a strong rise in inflation expectations.

In this case, with a stretch, we can assume that this factor remained the same for the poorer (which correlates with the lack of savings) population. On the contrary, people who manage their savings reacted to exchange rate problems almost indifferently.

The bulletin of the Central Bank also contains data from a survey of professional analysts (with a month delay to the data of the Infom surveys), surveys of industrial enterprises and retail for three months in advance (in the form of “balances” of responses-expectations of growth and decrease in the CPI) that is difficult to assess and incomparable with other data. , as well as indicators of imputed inflation from the OFZ market. Impressive growth in imputed inflation for the month (data on it is available daily online) also cannot be called, although it was significant.

Finally, direct assessments of current inflation in the Infom polls in August were very unusual: against the backdrop of a significant depreciation of the ruble, the “feeling” of inflation by the population decreased.

The median current inflation for all respondents was 13.5% in August (in July it was 13.8%), the indicator decreased in the group with and without savings, while in the group without savings, the reduction in inflation estimates amounted to 1 p.p.

The growth of inflation expectations is a factor directly referred to by the Bank of Russia, explaining the decision on the key rate, while the regulator carefully denied the intention of the Central Bank to stop the devaluation of the national currency by moving the key rate. Note that in this case it is pointless to “catch” the Central Bank on a hidden motivation: changes in monetary parameters cannot but affect the foreign exchange market in the future, but this happens with a large lag. Rather, the devaluation was used by the Bank of Russia as a pretext for a decision that in the “short” term was an emergency signal, and in the “medium”, up to a year, an attempt to “reset” overheated financial markets. It should be noted that the Infom data and rather calm weekly inflation data in August cast doubt on the further increase in the key rate by the Central Bank on September 15: nothing that would require immediate tightening, at least in the visible part of the data, is not happening.

Dmitry Butrin