Lettuce-type inflation

Rosstat’s summary of the dynamics of the consumer price index (CPI) in November 2022 confirms the assumption of a possible future surge in their growth: inflation is largely driven by prices for services and non-food products, the core consumer price index in November is above 15%. At the same time, the surge in monthly-to-month prices for a part of fruit and vegetable products – which, however, is still cheaper than a year ago – has not changed the overall picture: the monthly increase in consumer prices in November is two and a half times less than last year, year-on-year growth The CPI is already less than 12%.

The dynamics of consumer prices, data on which Rosstat presented last Friday for November 2022, is interesting because of the collision of two medium-term trends. On the one hand, domestic consumer demand in the Russian Federation, constrained by both the stagnation of incomes of a part of the population and the growth of the savings rate, is an anti-inflationary factor. On the other hand, the dynamics of the CPI components already quite clearly indicates a strong composition of pro-inflationary factors, which, at least in the short term (for several months, and apparently quite strongly in December), will accelerate the dynamics of the CPI. The general figures of consumer inflation in November by themselves say little about anything: the monthly increase is 0.37%, the consumer price index year-on-year is 11.98%. These are quite low figures: a year ago, the November price increase compared to October 2021 prices was 0.96%, and year-on-year inflation in the consumer market reached 8.4%.

More interesting, however, is a component-by-component comparison of inflation with November 2021. In essence, inflation in the Russian economy this November was already low: its main component was the increase in prices for fruits and vegetables by 5.58% over the month. In essence, all these are constant jumps in prices for greenhouse cucumbers and tomatoes (in the regions from minus 2.1% to plus 132%). The significance of “lettuce inflation” should not be exaggerated: over the year, all fruit and vegetable products in the Russian Federation nominally fell in price by 4.08%. In general, food inflation in the Russian Federation in November, despite the huge jumps in “salad” prices, turned out to be lower than the overall CPI growth, while the rise in prices for non-food products is higher, and for services that have remained below the general index for a long time, they grow to the level of 12% .

Non-food products almost did not rise in price in November (growth by 0.06%), but since the beginning of the year their prices have increased by 11.22%. Here, the leaders in price growth for the year are household chemicals (30.57%), electrical goods and household appliances (15.6%) and medicines (10.2%): all three groups are products with a large import component. In general, in the group of non-food products, the rise in prices is also the result of both sanctions with a collapse in logistics and the withdrawal of foreign competitors from the market, which allows the remaining producers to revise their price lists quite freely. However, in November, which began in March 2022 (the beginning of the Russian military operation in Ukraine and the subsequent events), the “flight” of prices associated with the “currency panic” has already ended, the prices for electrical goods and shoes, for example, were already declining in November. The weakness of domestic demand is also shown by the low price growth for building materials: in November 2022, they fell by 0.67%, since the beginning of the year, their prices have increased by only 4.29% (for the entire 2021 – by 24.63%). November inflation is absolutely “not fuel”.

In turn, as experts of the Central Bank noted earlier, there was no spring-summer “flight of prices” in the services sector due to the currency panic – this determined the slow acceleration of prices in this sector, which simply lagged behind the dynamics of prices for goods, which has so far exhausted itself. , but, apparently, it may revive from the beginning of 2023, especially with good industrial production dynamics. The highest growth of the sub-index in services is foreign tourism: the increase over the month exceeded the increase in “salad” prices, amounting to 6.87%, and this is mainly 13.8% of the increase in prices per month for an economy class seat on an airplane. In terms of year-on-year, foreign tourism has risen in price by 66.66%. However, insurance rose by 28.92% year on year, household services – by 11.2%, medical – by 11.59%, passenger transport – by 12.62%. Utilities rose in price least of all in the year – however, even without them, prices for services have room to grow in comparison with goods.

In early 2023, due to the “base effect”, inflation figures will fall sharply and rapidly. This, however, will not cancel the increased inflationary background against the backdrop of weak demand.

Dmitry Butrin