Inflation expectations of Russians rose in August

Inflationary expectations of the Russian population increased again in August, according to a survey by LLC “inFOM”, their median estimate for the year ahead was 11.5%. This is 0.4 percentage points more than the results of July and 1 percentage point more than the average for the II quarter, the press service of the Central Bank reported.

“The growth of inflation expectations is connected with the dynamics of both actual inflation and the exchange rate. The policy of the Bank of Russia is aimed at reducing inflation expectations and returning inflation to the target,” the Central Bank explained.

As the regulator noted, the growth of inflationary expectations is observed both among respondents with savings and without them. Long-term inflation expectations did not change in August – the median estimate for five years ahead remained at around 9.5%.

At the same time, annual inflation observed by the population continued to decline, amounting to 13.5% in August (-0.3 percentage points against July). This dynamics is due, first of all, to the observations of citizens without savings; for Russians with savings, the indicator has not changed much. The survey showed an increase in Russians’ concern about rising prices for salt and sugar, gasoline, meat and poultry, as well as tea and coffee. At the same time, concerns about rising prices for fruits and vegetables, fish and seafood, cheese and sausages, and household chemicals decreased.

The Central Bank also noted an increase in the propensity of Russians to consume in August. Thus, the share of respondents who prefer to spend money on expensive goods and not save them increased by 2.3 percentage points to 32%.

The survey was conducted from 1 to 10 August.

The Central Bank also reported on the acceleration of growth in price expectations of enterprises. The average expected rate of price growth in the next three months in August amounted to 5.2% in annual terms after 4.4% in July.

“The increase in price expectations occurred in all industries. The main reasons were the weakening of the ruble and the accelerating growth of costs,” the regulator said.

On August 15, the Central Bank decided to raise the key rate by 3.5 percentage points at once to 12% against the backdrop of a weakening ruble. The reason for the decision was the increase in inflationary pressure and inflationary expectations, which are under pressure from the dynamics of the exchange rate. The regulator did not rule out a further increase in the rate in the event of increased pro-inflationary risks. The next scheduled meeting will be held on September 15.

According to the regulator’s forecast, annual inflation will continue to rise in the coming months amid growing price pressure, as well as the withdrawal from the calculation of low monthly growth rates in summer 2022. The Central Bank expects that inflation by the end of 2023 will be at the level of 5-6.5% per annum and will return to the target at the end of 2024, and in the future will be close to 4%.