The expert gave a shocking forecast for inflation: 10% – this will be an achievement

– Let’s start with a question that baffles, probably, the entire Russian population. Starting from the summer, the authorities have been telling us month after month that inflation is slowing down, but at the same time people see that absolutely everything is becoming more expensive. The suspicion creeps in that we are being deceived…

Vovk: The people are not deceived. It’s just that inflation and deflation are completely different concepts. Many people, when they hear that inflation is going down, expect prices to go down, but that’s not the case. Decreasing inflation means a possible slowdown in price growth. But deflation is a decrease in prices in absolute terms. But no one claims that we have deflation. Inflation in the country remains, it’s just that its pace is now incomparable with those that were in the spring of last year. Therefore, the official figures are quite different.

Nikolaev: In my opinion, everything is quite simple and interconnected. Real disposable incomes of the population are falling (according to preliminary estimates, by the end of 2022, they will decrease by about 2-3%). And this despite all the indexing. And the real disposable income is, let me remind you, nominal, minus inflation. That is why inflation of 11.9% is considered very high by consumers.

– In February-March 2022, according to Rosstat, vegetable prices broke records. Many Russians fear this price anomaly this year as well. Is there a reason for this?

Vovk: Last year, against the backdrop of large-scale sanctions, firstly, logistics chains were rebuilt, and secondly, financial flows. The record rise in prices was precisely for imported goods. Now all logistics chains are established, so there can be no such a sharp jump in prices. The cost of the “borscht set” will not change much. But everything that we do not grow on the territory of our country will rise in price. A small fluctuation in prices, including due to currency risks, is very likely. For example, we do not have enough tomatoes, cucumbers, eggplants. If demand creates supply, then the number of offers creates a price reduction. This year, the number of proposals is not so large, so there is no need to wait for price reductions or stabilization. The trend towards their growth will not disappear anywhere.

Nikolaev: The main reason for the increase in the price of vegetables remains the same, it is seasonality. By the New Year, the fruit and vegetable set had risen in price very much, and after the holidays the prices did not fall. If you look at the statistics of Rosstat for the first half of January, then we will not see anything good there. For two weeks (from January 1 to January 16), fresh cucumbers increased in price by more than 19% by the end of December, tomatoes by 17%, carrots by 10%. And this is a very significant increase. That is, the rise in prices for fruit and vegetable products, which was recorded in December, continues. Unfortunately, it can be predicted that this growth will continue.

– Another painful topic for consumers: the rise in price of household appliances and electronics. That year, they grew in price due to the withdrawal of foreign brands from our market, parallel imports, and logistical difficulties. What do we have now?

Vovk: With warehouse stocks in Russia, everything is fine. There is an assortment. Now there are no restrictions: someone left, someone stayed, someone replaced. Supply chains are clear and stable. As for currency risks, no one is insured here. We do not know what the tariff policy will be. Therefore, there is a possibility of price changes in a big way. But I think the rise in prices for household appliances and electronics will not exceed inflation.

Let’s take other non-food items, such as shoes and clothes. How will the assortment and prices change?

Vovk: There have been structural changes in this market, but in general, supply chains have been established, market participants understand from which centers these goods come from: so the situation here is softer. Now about the prices. Everything that should be sold this spring was sewn off last fall. It turns out that the goods either already lie in warehouses, or go to a point of sale. The pricing policy will be more or less stable and adequate. But what will happen to prices for the fall, this is a question.

Nikolaev: With prices for non-food products in Russia, the situation is better. Now the exchange rate is more or less stable. Parallel imports are starting to grow in volume. I cannot say that this mechanism is fully debugged, but nevertheless it works. It turns out that there will definitely not be a shortage with the same clothes and shoes. When there is enough supply, it puts pressure on prices and does not allow them to rise. There are also demand restrictions (real incomes do not grow), this also holds back the growth in the cost of goods. It can be assumed that the rise in prices for non-food products will be more or less tolerable, moderate.

— Can manufacturers reduce the prices of their goods so as not to lose sales in the face of falling real disposable incomes?

Nikolaev: Each manufacturer calculates whether he can reduce the price or not. The business still has to pay for itself. Probably not for all products, but certainly there are some opportunities to reduce prices. Take, for example, chipboard – this is important for repairs. Here the proposal is very serious, and manufacturers and sellers are forced to reduce prices. Now the cost of woodworking products is really decreasing. Unfortunately, this is not yet the general picture, but such pleasant moments can also be found on the consumer market.

— What factors currently have the greatest influence on price growth?

Vovk: First of all, utility bills. Next is the cost of fuel. Each unit of production has transport and logistics costs. The next point is the tax burden that entrepreneurs bear. For small and medium-sized businesses, it still remains too large, and another important component is packaging materials. We don’t have enough containers. Sounds strange, but we don’t have enough cardboard.

Nikolaev: Despite all the devaluation, the exchange rate of the ruble certainly affects what happens to prices. Because the import component is still significant. Accordingly, if the ruble weakens, then prices rise. There are no miracles here. As long as this relationship persists. There are other factors as well. I would call them chronic. For example, an insufficient level of competition in a number of industries or the uncertainty factor of the economic situation as a whole. Right now, this uncertainty is at its highest level in the last decade. You can put yourself in the place of manufacturers, sellers and wonder how you would form prices when it is not clear what will happen tomorrow.

– Social benefits and pensions are constantly indexed in the country. Can this increase equalize the expenses of citizens and cover all their expenses?

Vovk: Hardly. Economic rule: slowing down inflation should be carried out, among other things, through state regulation. Therefore, the indexation of salaries of civil servants and social benefits is on average lower than inflation. This is done in order not to give rise to a new round of price growth.

Nikolaev: The experience of the last year suggests that it will not be possible to use indexation to ensure that the real disposable income of the population does not decrease. Since June 1, insurance pensions have been increased by 10%, the minimum wage has been increased. And what? According to the results of the year, there is still a decrease in real disposable incomes of the population. It turns out that despite such a significant indexation, which required many hundreds of billions of rubles from the treasury, the real incomes of citizens still declined. This suggests that if the economy is declining, then with the help of indexations alone, it will not be possible to improve the situation of people.

How can people protect their funds from inflation?

Vovk: The question is urgent for everyone. Now in Russia the planning horizon is 15 minutes. In a standard situation, I would advise you to diversify your available funds. Divide them between different sources: put something in the bank, transfer something into cash, buy currency for something. What to do now is the big question. To answer your question honestly, it is worth recognizing that there are currently no means of real income protection in Russia.

Nikolaev: The situation is not easy. If you agree that savings will still depreciate, I see only one way: there is some kind of opportunity for additional income – use it. That is, this is not actually saving money, but still an option to mitigate the current situation. If there are forces and opportunities, then we must not shun and earn extra money somewhere else.

– What goods, products, services will rise in price more than others in 2023? Why and, most importantly, by how much?

Vovk: I would venture to be very bold in my predictions. There are socially significant goods such as bread, sunflower oil, sugar. In connection with the events that are taking place in the world, it is likely that we will support other countries with food supplies. We will share, for example, with Africa. Such actions may affect prices in the domestic market. The first echelon of products in cheap stores, a loaf of white bread or a liter of ordinary butter, will not become more expensive. But slightly more sophisticated products – baguette, extra virgin butter, unrefined sugar – will rise in price. Price growth will be at least 20%.

Nikolaev: My main concern is the price of fruits and vegetables. Meanwhile, its share in the formation of the consumer price index is very significant. So it has always been and so it will be. Hence it turns out that if the rise in prices continues, then inflation as a whole can be quite high.

– And what could be inflation at the end of this year? The authorities predict 5-6%…

Nikolaev: I think it will be higher. There are factors that influence the acceleration of inflation, and we have already named them. Against this background, it will be an achievement if the annual inflation rate falls into a single digit. And I would not regard this as some kind of pessimistic forecast. In the current situation, this would be a good achievement. People can always come up with thousands of examples that they think show prices going up much more. But, of course, we are talking about official inflation.

Vovk: I will support a colleague. If we get inflation below 10% by the end of 2023, this will be an achievement. But, I’m afraid, there are serious reasons to believe that it will still be a two-digit number.

Top 10 most expensive goods and products in the Russian Federation for 2022,%.

Iodine +55.2

Matches +50.6

Toilet soap +44.2

Women’s pads +43.5

Foreign car new +39.1

Deodorant +38.8

Margarine +38.5

Laundry soap +37.8

Shampoo +36.9

Toothpaste +36.6

Source: Rosstat