The figures are lower, but more noticeable – Newspaper Kommersant No. 145 (7346) of 08/11/2022

If not for the increase in government-regulated tariffs in early July, deflation in the Russian Federation this month could have been a record high. Nevertheless, it continued in early August at the same levels – and has every chance of ending in September 2022. On a year-on-year basis, the economy is now living with inflation below 15%, thanks in part to the summer price correction and reduced consumer activity.

Data Rosstat on the scale of deflation in July 2022 and in the first week of August quite confidently demonstrate a moderate frontal decline in prices since mid-summer. According to the agency, the final indicator of consumer deflation in July is 0.39%, since the beginning of the year, cumulative inflation has been 10.98%.

Of all the components of consumer inflation, prices for services increased in July by 1.4%. For all other components of the index, prices continued to decline.

Prices for goods decreased by 1%, mainly due to a decrease in food prices – minus 1.53%, non-food prices fell by 0.44%. Seasonal fruits and vegetables fell by 11.53% compared to June 2022 prices. In annual terms, the components of the consumer price index do not look so impressive. The year-on-year growth in prices for goods was 16.76% at the end of July, for services – 10.75%. The core consumer price index (without volatile components) grew by 18.4% year-on-year, by June 2022 it fell by a symbolic 0.18%.

Without rising prices for services, consumer deflation in the Russian Federation would, apparently, be much deeper. However, in services, price growth was rather stable in the middle of summer: despite the fact that the main contribution to this growth was made by the July planned increase in prices for directly or indirectly state-regulated services (LCD, passenger transport, where the price increase compared to June prices was in components 3– 5%, significantly below the levels of other inflation), prices for non-regulated services (communications, insurance, medical services, hotels) also grew, although in a number of industries (education, sports) very weakly – but there was no deflation in services in any component. Recall that the service sector de facto continues to recover from the covid epidemic (this process is very long), but in general it raised prices less than the goods sector over the year: in the “year-on-year” dimension, services have risen in price less than goods, with the exception of foreign tourism, where the price increase from July 2021 to July 2022 amounted to 60.35%, however, in the current circumstances, the volume of these services in the consumer basket is greatly reduced.

In any case, without the indexation of tariffs, the economy would have entered August with a rather strong price decline that exceeded the concept of seasonal deflation.

The version of the Bank of Russia, attributing deflation in the summer of 2022 mainly to the adjustment of the “price flight” after the strongest currency fluctuations in the spring in connection with the start of the Russian military operation in Ukraine and the imposition of sanctions against the Russian Federation, is already less applicable by July than in previous months, although in In commodity segments where there is a strong presence of imports (electronics, medicines) or an export alternative (food), price declines continued in July. Meanwhile, deflation in the week following the end of July continued – Rosstat recorded it from the beginning of August on weekly data at the same level as in July (minus 0.013% per day), from August 2 to August 8, prices fell by 0.08% from the commodity price dynamics similar to July. Probably, at present, the annual inflation rate is already below 15% year-on-year: in July 2022, it was 15.1%;

It should be noted that the effect of the July tariff revision in August is almost no longer in effect, therefore, deflation in August 2022 is likely to be even slightly stronger than in July.

Much of the effect appears to be declining consumer demand. Based on Sberindex data (this project measures the weekly spending of citizens on Sberbank cards), nominal spending on goods and services from July 31 to August 7 in annual terms increased by only 5.8% against 5.8%, 8 .9% and 10.6% in the previous three weeks. The slowdown in dynamics is primarily found in the consumption of non-food products (minus 6% versus minus 5%, plus 1.5% and 2.4% respectively) and services (plus 10.2% versus 10.7%, 12.6% and 12% respectively). .7%). Thus, if from mid-June to mid-July the annual growth rate of consumption of services by citizens was actually at the level of inflation, then in the second half of July, real spending on them began to decline. Sberindex data shows that in the first week of August, as well as in the last two weeks of July, purchases of air tickets decreased most of all, and the rate of consumption of catering services (bars, cafes and restaurants) decreased in the week from July 31 to August 7 to 4. 8% versus 6.3% in the last week of July and 27% on average in the previous four weeks. Meanwhile, in the first week of August, the fall in spending on hotels in Russia noticeably slowed down to minus 1% from 4.9% in the previous week and 4.2% in the week before.

Only nominal spending on medical services and beauty salons increased somewhat, remaining, however, in a noticeable minus in real terms. Significant real growth in spending (more than 50% since mid-July) remains only for entertainment services, probably due to the redistribution of unfulfilled spending on non-food products to them.

It is still difficult to say whether the deflationary trend will spread to September 2022 (it has already spread to August with a very high probability).

Price forecasts for services are very skeptical – their growth is likely to be minimal, and the end of deflation in food products expected in August is just an assumption for now.

Limits the limits of deflation by several factors. First, although it is not known what exactly happened to Russian imports in July (and what is happening in August 2022), one way or another, they will recover, including in the form of “parallel imports”, and this process will inevitably be pro-inflationary. “Fruit and vegetable” deflation should also exhaust itself, while the peak of seasonal consumer spending in the fall is inevitable. So far, everything suggests that September will be the last month of deflation or price stagnation in 2022.

The new constant price level, most likely, will be determined by the end of 2022, with a sharp decrease in inflation in the “year-on-year” dimension. Further, predicting an inflationary trend is a very thankless task: a decrease in demand in the economy will be superimposed on a certain increase in supply, including for imports, and equilibrium in this process may not be achieved in the first half of 2023.

Dmitry Butrin, Alexey Shapovalov