The paradoxes of Russian inflation: neither the people nor the government believe in slowing down prices

Rosstat has calculated the consumer price index for May. It turned out that in the last month of spring, inflation in Russia amounted to 0.31%. And in annual terms, it is at around 2.51%. This is somewhat more than what was recorded in April (2.31%) – but still very low. But no one is in a hurry to rejoice about this: neither the authorities, who are well aware of the “paper” nature of this price reduction, nor the population, which does not feel any slowdown in inflation on their wallets.

Why annual inflation is so low is no secret. Rosstat compares fresh data with figures for May last year, and then inflation in the country went off scale for 17% per year. Based on that “high base”, the current values ​​​​give such a modest growth. But if you look at inflation exclusively for this year (that is, from January to May inclusive), then the figure will be of a completely different order – 11.8%.

It is noteworthy that just the day before, the Central Bank left its key rate at 7.5%. That is, 3 times higher than the official inflation, although the regulator usually adjusts the key rate according to the consumer price index. In a word, neither the population nor the authorities believe in victory over inflation.

And if you look closely at the May data of Rosstat, you can see a lot of paradoxical and alarming figures there. For example, food products in May fell in price by 0.31%, and over 5 months, on the contrary, rose in price by 2.23%.

Prices for fruit and vegetable products in May decreased by 3.8% (and in annual terms – by 9.1% at all). It would seem that this is a reason for joy, but … In May, white cabbage rose in price by 86.6%, carrots – by 21.4%, lemons – by 11.4%, potatoes – by 9.5%, onions – by 9, 3%, table beet – by 7.5%, garlic – by 6.7%. What is there to be happy about?

And if we add to this list granulated sugar (by 6%), chicken meat (by 5.4%), lamb (by 4.7%), which have noticeably increased in price, then it becomes completely dreary …

Of the non-food components, the population planning summer vacations is unlikely to be pleased with the rise in the price of trips to the Black Sea coast and the Crimea – by almost 25%, to Turkey (by 10%), to Belarus (by 6%) and to the Transcaucasus (over 4%). Yes, and in principle, travel anywhere has risen in price. Fares in long-distance trains – from 4% to 13% (depending on the class of carriages), air travel in economy class – by almost 9%.

– How can you evaluate the May data on inflation? – we asked Igor Nikolaev, Doctor of Economics, Chief Researcher at the Institute of Economics of the Russian Academy of Sciences.

– The current low level of inflation is quite understandable, because a year ago, at the beginning of spring, we had a sharp rise in inflation, in annual terms, about 17%. Against the backdrop of that high base, the current indicator seems to be lost. This is one of the reasons, but not the only one. In particular, the decline in consumer activity of the population played its role. Recently, things have become more fun with this, but the demand constraint also affects.

– Can we assume that in difficult conditions the authorities still managed to curb inflation?

– You can’t count that. The day before, the Bank of Russia cautiously stated that inflationary risks are rising. If not this time, then the next, the regulator is likely to raise the key rate. That is, inflation is not driven into a corner, it will start growing again. By the way, weekly consumer price indices have already begun to rise. I would say that 2.5% is a good indicator, but let’s not forget that chickens are counted in the fall, and inflation is at the end of the year. Then we’ll see the real one.

– And what, in your opinion, it will be in December?

– I think in the region of 6% – significantly higher than now. Since the base for comparison will be completely different in annual terms. In short, many factors suggest that prices will rise. Inflation in annual terms has already gone up. And this trend will become clearer every month.

– So we shouldn’t expect deflation? Indeed, in 2022, it began literally from the very summer and lasted until late autumn …

– There are months when natural deflation takes place in Russia – this is usually July-August: the seasonal fruit and vegetable factor works, mass harvesting. But this year there is no need to wait for deflation. We have already passed the lowest point in terms of inflation, now in annual terms it will slowly increase. And by the end of the year, not even slowly, but clearly.

– But lately the ruble has begun to weaken. Could this have an effect on the final inflation?

– Yes, the trend towards the weakening of the ruble continues. We see that the ruble exchange rate either stops at certain levels, or again loses ground, rolls back. 90 rubles per euro no longer seems to us something out of the ordinary.

The main factors for the weakening of the exchange rate of our national currency are still preserved. Export oil and gas revenues, which are the main suppliers of foreign currency, decreased by 50% in annual terms in May. This is a strong decline. As a result, the supply of foreign currency dropped sharply.

It can be stated that the sanctions pressure is increasing, and the ruble is weakening under this pressure. The foreign trade balance is also developing not in favor of the ruble. It will not collapse, but gradually weaken. As for inflation, in 2023 it will not go beyond some threatening limits, as it did last year. 6% per year is quite acceptable.