Inflation in March fell below the target of the Central Bank for the first time since 2020

Inflation in March 2023 amounted to 3.51% in annual terms after 10.99% in February, follows from Rosstat data. The last time the consumer price index fell below the CBR target of 4% was in 2020 (it was 3.99% in October). Since the beginning of 2023, prices have increased by 1.67%.

On a monthly basis, inflation slowed to 0.37% after 0.46% in February and 0.84% ​​in January. Most of all services rose in price over the month – by 0.97% (in annual terms – by 9.73%). Food products increased in price by 0.13% (in annual terms – by 4.44%), including fruits and vegetables – by 0.6%, non-food – by 0.14% (in annual terms by 0.12% ).

Among the products, prices increased the most for tomatoes (by 18.1% in monthly terms), grapes (7.6%), bananas (5.2%), greens (5.2%), pears (5%), eggs (3.6%). At the same time, cucumbers fell in price (by 21.8%), potatoes (by 4.6%), buckwheat (by 3.3%), oranges (by 2.1%), oatmeal (by 2%), cabbage (1 ,9%).

Among non-food products, smart watches (by 2.3%), shaving foam – by 2.1%, ibuprofen (by 2%), no-shpa – by 1.9%, medicines in general – by 0.13 %. Decreased prices for TVs (by 3.7%), flash drives (by 1.6%), electrical goods and other household appliances – by 0.1%. Gasoline prices increased by 0.1%, while gas motor fuel prices decreased by 1.7%, diesel fuel – by 0.4%.

In March, among the services of foreign tourism, prices for holidays in Egypt increased by 16.5%, Turkey – by 13.4%, Belarus – by 10.7%, certain countries of Central Asia – by 7.7%, the countries of the Transcaucasus – by 5.5%, the UAE – by 4.0%, certain countries of Southeast Asia – by 3.2%. Among domestic tourism services, the cost of vacation trips to the Black Sea coast and the Crimea increased by 12%, sightseeing tours – by 3.4%, accommodation in 3-star hotels – by 2.9%, river cruises – by 2.7%, accommodation in 4-5 star hotels – by 2.2%, cinema tickets – by 1.9%.

In the group of passenger transport services, tariffs for air travel in economy class increased by 7.9%, travel in various carriages on long-distance trains – by 2.9%.

Inflation in Russia in annual terms by the end of April will fall below 3%, Russian President Vladimir Putin noted on April 11 during a meeting with the government. At the same time, it is important to avoid not only excessive acceleration of inflation, but also its excessive slowdown, the head of state added.

According to the forecast of the Ministry of Economy (it should be updated in April), inflation is expected to reach 5.5% this year, and in 2024 it will drop to 4%. The Bank of Russia expects it to be 5-7%.

The slowdown in price growth is associated with a noticeable decrease in food inflation, said Dmitry Polevoy, investment director at Loko-invest. Part of the food basket continues to fall in price, prices for fruits and vegetables almost did not grow, the analyst points out. According to him, the main reasons are restrained demand and minimal price growth rates in agriculture and food production.

The increase in food prices in March was the lowest in the last 20 years (at least since 2002, food inflation in March has not been below 0.13%), economist Alexander Isakov notes. According to him, this is primarily due to the high grain harvest last year. As of today, the FAO Global Grain Index has fallen 32% yoy, and the indirect effects are that meat prices have fallen for the tenth month in a row. At the same time, at the end of the year, there may be a noticeable acceleration in food inflation if the forecasts for a decrease in the grain harvest to 120 million tons per year come true, Isakov says.

The main increase in prices is concentrated in non-regulated services, Polevoy points out. “Part of it is connected with the seasonal increase in the cost of transport and tourism services on the eve of the May holidays, as well as the weakening of the ruble,” Polevoy believes. But another reason is the catching up growth in the cost of services since the pandemic. Since the beginning of 2020, food and non-food products have risen in price by 28.5-30.5%, and in services, an increase of only 22.6%, if you look at seasonally adjusted figures.

According to Isakov, the key reason for the difference in price increases in services and goods is that the former do not compete with imports – neither conventional nor parallel. “The departure of foreign producers of goods did not lead to a particular decrease in competition in the market, since it was possible to arrange the supply of the same goods in other ways,” he points out. In services, the situation is completely opposite – the departure of foreign payment systems and the increase in the cost of flights have limited travel opportunities for the mass of citizens, increased the demand for tourism, hotel services within the country in the face of falling competition, the economist emphasizes.

Inflationary momentum (seasonally adjusted index for 3 and 6 months in annual terms) remained below the target 4% in March, so the numbers hardly give grounds for changing the rate at the next meeting, Polevoy points out. The expert doubts that the Central Bank will change its signal, as concerns about inflationary risks remain. “But if from the side of the budget they slightly decreased, then from the side of demand and exchange rate they increased. Therefore, apparently, the Central Bank will continue to see more chances for an increase in the rate than its reduction for the time being,” he says.

Rising prices for services gives the Bank of Russia grounds to repeat its fears that the state of the labor market, the exchange rate and the budget create risks for inflation, Isakov believes. The average current seasonally adjusted price increase on an annualized basis is about 3% and remains below the target, the economist says. Usually, the Bank of Russia starts raising the rate after the current price increase exceeds the target for three months – today such conditions have not developed and will not develop before July, the expert emphasizes.