Inflation expectations in Russia have grown: the Central Bank promises to tame price growth to 4%, and the population expects at least 12%. The survey data was published by the regulator itself, and this is the maximum for nine months. The growth turned out to be sharp: back in October, Russians believed that inflation on the horizon of the year would be at 11%. The deterioration is noticeable both in business estimates and in macro forecasts of professional economists, which are carried out by order of the Central Bank.
At the same time, the deterioration of expectations occurs against the backdrop of a real rise in prices. In annual terms, it has already exceeded 7%, which is why the regulator had to rewrite forecasts twice. “The increase cannot be called harmless,” admitted the head of the Central Bank, Elvira Nabiullina.
What’s happening to prices? And why can’t they be contained? President Vladimir Putin attributed the acceleration of inflation to the weak ruble exchange rate. But there are other reasons, explained Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences: “The dynamics of the national currency is only one of the factors that affects prices. There are seasonal aspects, for example, the same uncertainty of the economic situation.
Consumers associate further dynamics with what is happening in the fuel market. That’s why we see that the ruble seems to be strengthening, and prices continue to rise.
In addition, with the adoption of the federal budget for 2024, it became known that tariffs in the housing and communal services sector will increase, albeit by 10%. All this forms inflation expectations. The forecast for this year is still 7.5%, the maximum will be 8%.
As for 2024, I think that it will be approximately at the same level as now. Maybe even a little higher. If inflation does not exceed 10%, it will be good.”
Elvira Nabiullina explained the rise in prices by high demand: loans in the first half of the year were relatively cheap, and in addition, in 2023, wage growth was almost 10%, the Central Bank noted. This allowed Russians to increase consumption.
To reduce demand, the regulator has already raised the key rate four times: in July it was 7.5%, now it is 15%. Before the end of the year, the board of directors will have another meeting, and the latest inflation data will force it to act again, Alfa Bank chief economist Natalia Orlova is sure:
“Food prices continue to rise. Also in early November, for example, there was a jump in car prices. That is, in my opinion, now enterprises are transferring their costs into the final cost. And in previous months, against the backdrop of fairly rapid growth in wages, they increased significantly. In addition, many enterprises are faced with a shortage of personnel, and, of course, for them this context means continued inflationary pressure.
I think that the Central Bank will try to end the rate increase cycle in December. The goal is to ensure that inflation falls to 4% by the end of 2024.
Since this figure has exceeded the Central Bank’s benchmark for four years in a row, this is a very important task. To this end, we need to act now. The question is whether this increase will be to 16% or maybe the regulator will consider that it can increase the rate to 17%.
Elvira Nabiullina previously announced that high rates would remain in Russia “for several quarters.” The Central Bank will be able to switch to a reduction only when it notices stable signs of a slowdown in inflation. It is expected that this could happen late next year. The average key rate in 2024, according to the Central Bank’s forecast, will be around 12%.
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