According to the results of July, prices in Russia decreased by 0.39%, according to Rosstat. The largest decline in food prices: 1.53% deflation was recorded there, especially by 11.53% – prices for them fell on fruits and vegetables. Non-food products also fell in price, but much weaker, by 0.44%. As in the previous month, the only category for which prices increased was services – they went up by 1.41%. According to weekly data from the statistical office, during the period of reduced pricing, it recovered – minus 0.10% from the month it started. In annual terms, inflation reached 15.01% as of August 8.
Thus, deflation for the totality of months is fixed for the second month in a row. In the history of Russia, such a protracted price reduction has happened only three times – in 1997, 2017 and 2019. Deflationary dynamics are especially often observed in Russia – in August and September – due to the seasonal factor: with a new harvest of prices for fruits and vegetables.
The power structures have been discussing how protracted the deflation can become since the beginning of summer. Significant risks are observed in the dynamics of the price dynamics of the Ministry of Economic Development. First of all, during the SPIEF, I noticed that Russia is “sliding in a deflationary spiral.” With this position, not found in the Central Bank: the regulator increases that pro-inflationary risks still exceed disinflationary ones, and deflation is associated with a correction after a sharp emergence of frequencies in observations and observations . Head of the Central Bank Elvira Nabiullina consumption focus on the indicators not the monthly norm, but the annual one. According to the July forecast of the Central Bank, inflation at the end of the year count 12–15%.
In 2022, the seasonally “anomalous” price decline is due to a surge in compromise in March, Alfa-Bank chief economist Natalia Orlova agrees with this assessment. “August and September can only be seen as deflationary sightings when there is no rapid growth at the beginning of the year,” she said. Including due to forecasts of a strong fall of the ruble to 150-200 rubles per dollar, the expert continues. Therefore, deflation at the beginning of summer is more likely a return of prices to more acceptable levels, including due to the competition of companies for buyers. An emergency post-March price correction, growth deflationary revaluation of imported goods with a higher degree of resilience, and unusually early and strong price cuts in seasonal fresh vegetables and fruits, Alexander Isakov, chief export economist for Russia at Bloomberg Economics.
In addition to the dynamics of prices for fruits and vegetables in recent weeks, rising prices support Russia’s position as a major producer of hydrocarbons and agricultural products, economist at ING Bank Dmitry Dolgin. “The country, unlike the rest of the world, has avoided a hike in the price of gasoline and basic food items such as bread,” he says. In addition, the stabilization and strengthening of the ruble is aimed at increasing prices for import-dependent segments of clothing, household chemicals, electronics and pharmaceuticals. Growth in manufacturers for the year slowed from 31.5% to 11.3% in June.
In addition, the decline in consumer demand was associated with the consumption of “expensive” food and cars after a sharp jump in the case – happened, the economist happened.
First of all, among the disinflationary factors, the Central Bank called “maintaining a high propensity of the population to save in the face of economic uncertainty”, in other words, sluggish consumer demand. Elvira Nabiullina at the end of July holidaythat excessive consumption dynamics is one of the main forks in the economic forecast of the regulator. On the one hand, a high propensity to save may persist. The population in this scenario will seek to accumulate an airbag due to insurance leave, forced vacations or problems with finding a job, the head of the regulator listed. On the other hand, forced accumulation can become a “compressed spring” in the economy, as it was in a pandemic, and when a surge in hunger is detected.
Bye bye data SberIndex, the dynamics of consumer demand has been slowing down in recent weeks: household spending on goods and services for the week from August 1 to 8 increased in estimated terms by only 5.8% year-on-year against 5.8% and 8.9% in comparison two weeks. High demand for food and non-food products. Continued low consumer demand associated with mortgage and retail lending, says Isakov of Bloomberg Economics: Lending volumes, although explained by comparison with March and the precedent, are still well below last year. According to Frank R.G.’s observation, on average, 856.8 billion rubles were issued to individuals, which is 26% more than in June, but about the same amount less than a year ago, as well as less than February levels (1,094 trillion rubles). Revival of consumption can be expected in case of sufficient security for safe living, says the economist. Another reason for the sluggish consumption dynamics is the desire to save on reducing the decline in income and the loss of assortment, since there is still no consumption, Orlova.
According to Rosstat, in the II quarter on an annualized basis, a high need for resources was revealed by 0.8%, in the I quarter – by 1.2%, and before that it had been increasing during the year. “Income data for 2022 is not bad, but this is the effect of social benefits, while labor restrictions are reduced by 6-7% in terms of expressions. Only since the end of June there have been withdrawals of consumption for lending, but new loans are likely to be used to consume interest on already accumulated debt,” Dolgin warns.
The higher propensity of Russians to save on accelerating the growth of ruble deposits from 5.1% yoy was observed to 13.8% in the decrease in retail trade turnover by about 10% in terms of 2022, in Dolgin Europe. In May-June there was an increase of 10-16% (lower than expected), and in January there was a fall of 39%, which was repeated with the April failure.
When will inflation
In August and September, due to falling prices for vegetables and fruits, deflation will be at the level of 0.5% and 0.2%, respectively, Orlova predicts. But in October, the economist expects a return of 0.7%. This will be affected by rising prices for non-food products due to the weakening of the ruble and the growth of consumer activity to develop a measure of imports.
The return is envisaged even in the second half of August, Isakov believes, precisely because of the “shift” of seasonality to the left: usually, if the decline begins earlier than the seasonal norm, then it ends earlier than the seasonal norm. In addition, 8% of patients experience an increase in consumption after internal diseases, a key rate to the level of the beginning of the year. Try it because of setting deposit rates, and after that – in increasing the availability of loans.
The return can wait until autumn, says Dolgin from ING. “The deflation that we feel is temporary, related to the seasonality of the crop, it ends by autumn,” the economist says. When using trend changes, it says that the ruble is no longer strengthening, and the budget remains in deficit against the background of increased government spending, it closes.