Russia is plunging into stagflation, and officials are confident that vegetable growing is to blame
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On the past, the government of the Russian Federation had the inconsistency of its inflation forecasts. Last Thursday, the Ministry of Economic Development and Trade raised the official forecast for price increases for 2021 from 5.8% to 7.4%. “About 90% (or 1.4 percentage points) is explained by food prices, another 0.2 percentage points are accounted for by non-food products. The main problems of food inflation are on the supply side, ”Maxim Reshetnikov explains his vision of the economic development situation.
At the same time, Finance Minister Anton Siluanov saw the threat of a global inflationary wave, which could reduce supply. At a meeting of G20 finance ministers and central bank governors, Siluanov on the risks of a stagflationary scenario in the global economy. “Inflation is already showing in 14 G20 countries, and in many indicators of inflationary pressures they are unprecedented,” Siluanov said. The reason, according to the minister, is “the use of incentives that are disproportionate to the possibilities for economic recovery.” The official also serves a colleague to follow Russia’s example of a “normalization trajectory for fiscal and monetary policy.”
In fact, Russia has one of the highest inflation rates in the G20 countries. Whether other countries will volunteer to join the list of stagnant economies with falling incomes is a big question.
While Silu announced to foreigners about the threat of stagflation in their countries, Russian economists have already begun to stagnate against the backdrop of accelerating inflation in Russia itself. “General assessment of the situation: stagflation begins. The wave of economic recovery is coming to an end, while the inflation rate is only going up, ”says a new report by the Center for Macroeconomic Analysis and Short-Term Analysis (CMASF).
The problem is that the stagflationary trap formed by the regime is difficult to overcome: the strengthening of the monetary policy is more likely to intensify the slowdown in output. And stimulating demand is more likely to lead to increased inflation, especially in the face of formed negative expectations.
Last week it became clear that a new wave of food inflation was moving in the Russian Federation. One sign is the failure to freeze chicken prices. Last month, the Ministry of Agriculture of the Russian Federation announced that it had reached an agreement with producers to maintain stable selling prices for poultry carcasses until the end of the year. Trade networks and the Ministry of Industry and Trade were to join this agreement. But this has not happened yet. And wholesale prices for poultry meat continued to rise at a rate of more than a percent per week.
Operational measurements of the economic dynamics in the Russian Federation on the transition of the Russian economy from the post-crisis recovery to stagnation: “investments and consumption of the population are at a standstill; export growth is noted for a limited range of goods … There is a transition to stabilization or even a corrective recession, ”say independent economists. So, in construction, the correction continues, and we can assume that the industry is moving from growth to stagnation. And it is not surprising, because Russians on mortgages in September fell by 41.4%, the National Bureau of Credit Histories said on Saturday. The decrease in demand was influenced by the increase in the cost per square meter in the country.
Stagnation in Russia is developing against the backdrop of an inflow of surplus profits from the export of raw materials. The oil and gas revenues of the Russian budget and off-budget funds in 2021 may grow by almost 70% compared to the level of 2020, or by $ 50 billion against the background of high oil and gas prices, the international rating agency Fitch calculated.
About 75–80% of the total budget revenue is for the export of oil and oil products. “The contribution of gas, despite the explosive growth in prices on the spot market, will be more modest – about 20-25%,” say Fitch experts.
True, high gas prices in Europe have already led to the refusal to purchase this type of fuel: in the first two weeks of October, European industrial enterprises reduced their purchases of natural gas by 12% in relation to the pre-dock period. Ditching natural gas is a new trend.
Until recently, the energy crisis played into the hands of fuel suppliers. Gazprom’s revenues from gas exports have doubled in eight months.
On Wednesday, the European Commission (EC) approved a set of measures to counter the global rise in energy prices. “Short-term national measures include emergency support for households, state aid to companies and targeted tax cuts,” the EC decree says. “The Commission will also support investments in renewable energy sources and energy efficiency, study possible measures for energy storage and gas replenishment, and review the electricity market.”