The August growth of inflation in Russia

Updated September 2, 2009

   According to the preliminary calculations of Rosstat published on September, 1, in August the inflation was 0,2%. So, the hopes of the deflation didn’t fulfill because of the prices’ rise for meat and meat products. There is little chances that the inflation will be lower than the last year’s level (11,9%). Moreover, the Central Bank announced already that it suspended the tightening of the monetary policy.

   According to the preliminary calculations of Rosstat (Federal State Statistics Service), in August the inflation level can settle at 0,2%. The statistical service’s conclusion was based on the study of consumer prices for August, 19-25: within this week, the consumer price index (CPI) didn’t change. Thus, within the nine months of 2008, the inflation reached 9,5%, and 14,8-14,9% on the annualized basis.

   The majority of economists, including the Bank of Russia’s management, expected that in August-September, the market would observe some deflation, or the CPI reduction, due to the seasonal price cut for food products. Despite the fact that Rosstat records the considerable price drop for all fruits and vegetables, it didn’t happen. Within the studied week, carrot became the "record-holder" of the price cut - it lost 7,4%, potato occupies the 2nd place with 5,9%, then white head cabbage (5,2%) and onion (4,0%). The price for such food products as meat (beef - 0,8%), meat products (sausages, wiener, canned meat - 0,7-0,9%), rice (0,7%), confectionery (0,5-0,6%) and salt (1,1%) grew.

   In the monthly study of the economic situation published recently, the Ministry of Economy was cautiously optimistic concerning the inflationary processes. As it was marked in the document, in July "the inflation on the annualized basis started falling for the first time after its growth since March, 2007 - the annual inflation was 14,7% after the peak in June of 15,1%". The majority of the economists surveyed expected the inflation deceleration on the annualized basis. This process doesn’t take place yet, and the inflation is still very high.

   The key reasons are given in the study of the Ministry of Economy. First, it is "the outstripping growth of the consumer demand for commodities and services as compared to their supply restricted by the insufficient competition"; second, "the continuing adjust of the internal prices to the high world prices (for food products foremost)". The last factor is of primary importance for Russia as compared to the developed countries, since in Russia the stake of expenses for food products in the consumer basket is higher, than in the developed countries. In other words, the Ministry of Economy reminds again about the conventions of the inflation index: if the amount of the food products in the basket (characteristic of the countries with the relatively high income of the population) was less, the CPI would grow slower.

   However, there is the third factor about which the Ministry of Economy reminds as well - the tightening of the monetary policy. The policy of the Central Bank and the continuing net outflow of the foreign capital already resulted in the considerable deceleration of growth rates of the money offer and in the growth of the interest rates. On September, 1 another revision of reserve requirements that should lead to the additional tightening of the monetary policy came into effect. Only when some time passes, we will see how effective the steps of the Central Bank are. The first deputy chairman of the Central Bank Gennady Melikian warned already that the bank intended to make a pause: not to raise the interest rates and the reserve requirements for some time. The pause lasts to October at least. The Central Bank requires some time to analyze the reaction of the Russian economy to the reduction of the money offer, and to assess the price rise in September, as well as to analyze the scales of the capital outflow that followed the aggravation of the geopolitical situation after the war conflict in South Ossetia.