Inflation expectations of the population increased in November according to an InFOM survey for the Central Bank

The population’s inflation expectations and estimates of the inflation they observed increased noticeably in November, as did the propensity for immediate spending. At the same time, producers’ price expectations have stabilized. Data from an InFOM survey commissioned by the Bank of Russia describe simultaneously formed expectations of a New Year’s surge in inflation and, apparently, a gradual destruction of medium-term expectations for future growth.

The increase in inflation expectations in InFOM surveys can hardly be called unexpected: the current increase in prices in October-November 2023 was large, and the visible strengthening of the ruble, which in the future should slow down the effect of the pass-through of the ruble exchange rate (which decreased in August-September) into prices, occurred only in recent weeks. However, the growth figures themselves and estimates of current inflation and inflation expectations for the year ahead are more significant than might be expected. On average, respondents estimated inflation over the past 12 months in November at 15.1% (median value in October – 13.9%). A significant part of the increase was provided by the group of respondents who reported having savings – they believe that in a year-on-year measure, inflation in November was 13.4% (in October – 11.9%), the increase in expectations for the group without savings is lower – they estimate price growth for the year at 16.6% (a month ago – 11.9%).

From what is happening, we note, it does not at all follow that the population distrusts the actions of the Central Bank aimed at reducing the dynamics of the consumer price index (CPI). Inflation estimates for the next 12 months have increased in sync with estimates of observed inflation, but remain significantly lower—at the end of 2024, respondents assume, they will be lower than now. Long-term estimates—for five years ahead—were unchanged in November at an annual average of 11%. They are roughly in line with the year-ahead inflation estimates for the savings group. Thus, the observed inflationary surge, despite the traditional discrepancy in the scale of assessments, is considered by the population as a one-time event, and some reduction in inflationary pressure is expected in the future – the Central Bank’s constant statements about its readiness to achieve a return of the CPI dynamics to 4% are perceived not only as rhetoric, but also as a goal that the Central Bank will pursue and achieve some results in this.

In many ways, the increase in inflation expectations of the population in the November Bank of Russia survey is a self-fulfilling forecast: one of the important points in the InFOM survey is the significantly increased willingness of the population to spend rather than save. “The share of respondents who prefer to spend free money on purchasing expensive goods rather than saving them increased to 30.6% (plus 5.2 percentage points, percentage points by October). The share of those who prefer to save decreased to 51.3% (minus 4 percentage points compared to October),” states the Bank of Russia, also noting an increase in the consumer sentiment index in November. Let us recall that a significant part of the non-food retail turnover occurs in the last two months of the year; it is possible that the ongoing surge in inflation expectations is also associated with this factor – along with the fact that there has been a significant rise in prices for meat and poultry products, prices for which grew significantly in October-November , also contributed to the change in estimates.

The rise in inflation sentiment in November itself may be an accident – but an unpleasant one. In the next three months, the demand situation may, depending on the level of budget expenditures in November-December, become further complicated: 2024 may begin with a new increase in demand and a new surge in inflation expectations, which in this case will already go beyond the 2021-2022 averages years. The Central Bank will have to vigorously fight the latter – “anchoring” of inflation expectations cannot be achieved in principle if the behavior of long-term expectations is unstable. At the same time, the remaining indicators in the InFOM report fully confirm the Bank of Russia’s assumptions that in November the process of stabilizing inflation processes started and is producing the first results.

Dmitry Butrin