No worse, but more incomprehensible – Newspaper Kommersant No. 195 (7396) dated 10/20/2022

Published on Wednesday, October 19 by the Bank of Russia, the issue of the Bulletin “What the Trends Say” records, according to data as of October 12, a new expansion of the boundaries of what is possible in the economy at the time of partial mobilization. According to the first data, the September deceleration of the summer recovery has intensified, and the uncertainty of its impact and duration on the de facto models of the Central Bank analysts does not yet allow us to interpret their results with certainty. The contrast of short recovery trends with increased medium-term uncertainty exacerbated by demand restructuring is intensifying.

“By the end of the month, economic dynamics began to deteriorate somewhat. The economy is faced with new shocks of supply and demand, to which it will additionally have to adapt,” this is how analysts from the DIP Central Bank describe the events that took place in the Russian Federation on the eve of and after the announcement of partial mobilization, which caused a contraction in the labor market and the entry of companies into a period of instability. process in August (see “Kommersant” dated September 29).

Describing the state of the markets at this moment, Bank of Russia analysts note that September brought a reversal in price dynamics for a wide range of goods and services (which was facilitated by one-time pro-inflationary factors — an increase in the cost of foreign tourism, communications, and the cost of an OSAGO policy) and an accelerated end to the “fruit and vegetable” deflation.

As a result, seasonally adjusted prices increased for the first time since May: their overall level rose by 3.4% mom (mom) in September after declining by 0.6% in August (by 11% in services, by 0.9 % m/m for non-food products and 0.4% for food).

The influence of another strong disinflationary factor, the strengthening of the ruble in April-June, is gradually fading, and the stabilization of the exchange rate by the end of the year may nullify it, “which, other things being equal, can cause an acceleration in price growth,” the DIP notes. The assessment of trend inflation also testifies to the possible preservation of inflationary pressure at an elevated level (above 4%): in September its value was 8.7% after 8.8% in August.

Weekly price growth slowed down in early October (to 0.02% in the week of October 11-17, according to Rosstat’s latest data, after 0.03% and 0.07% in previous weeks), however, even here, the DIP notes a likely short-term phenomena, since social payments and stable incomes can disperse consumption, which, if supply constraints remain, “suggests a pro-inflationary background on the monetary policy horizon.”

As a result, throughout September, inflationary pressures increased, and the simultaneous reduction in consumer demand and supply “complicated the forecasting of their combined impact on further growth in consumer prices,” the bulletin notes. A separate section is devoted to this complication in Trends — it describes the “restructuring of demand” caused by the withdrawal of Western companies from the Russian markets as a de facto refusal of consumers to import substitution in the groups of goods where it was the most massive (clothing, furniture, telephones, household appliances, cars). “Sustainable income dynamics will contribute to the growth of inflationary pressure in the non-food segment, even with restrained spending on them,” and the redirection of spending to other categories (for example, services) “may provoke additional price growth in these segments,” DIP analysts suggest. And this is just one of the pro-inflationary risks that make medium-term forecasting difficult.

The impact of partial mobilization and increased uncertainty on consumer and investment demand, on the supply and demand for loans, as well as on the labor market, wages and incomes of the population “has yet to be assessed,” analysts say.

The Central Bank clarifies that these factors “may turn out to be generally both disinflationary and pro-inflationary, and, moreover, their direction may change over different time horizons.”

Describing the “new reality”, Central Bank analysts note the success in the initial adaptation of companies to it in terms of logistics, maintaining the level of production in oil production and oil refining and maintaining the volume of work in construction, which “provided stabilization and even some growth in economic activity in the summer.” However, a slowdown in economic activity and a shortage of labor market personnel threaten to slow down productivity growth in the long term, and “the main negative effect of external restrictions on the oil industry and on the supply of investment and high-tech goods seems to be ahead.” DIP has been waiting for him since the end of 2022, and “until that time, the transition of the Russian economy to sustainable growth is unlikely to happen.”

Oleg Sapozhkov