Rounding by May

In May 2021, inflation exceeded 6%, including core inflation. Although representatives of the monetary and economic authorities point out that the reason for the jump is purely statistical, this is the base effect, the rise in prices compared to April 2021 accelerated everywhere. An increase in the key rate by 50 basis points at the next meeting of the Central Bank becomes almost inevitable – expectations, including expectations in world markets, remain the key factor for price growth, and it is important for the Central Bank to suppress the scenario of an “inflationary spiral” at the start.

Rosstat reported that in May, consumer price growth in annual terms reached 6.02% after 5.53% in April, exceeding the local peak in March 2021 and returning to the values ​​of the end of 2016. June was the first month when, against the background of general attention to the indicator, the statistics department began to publish data with an accuracy of hundredths, and in this fact, in fact, there is a quite sober expectation by Rosstat of future low inflation: long-term measurement of price dynamics in two decimal places only with a deliberately single-digit inflation close to 2–3%. In addition, the current surge was predicted in advance: all observers and the Central Bank itself said that the index had reached 5.8-5.9%, the same level was indicated by monthly measurements of the dynamics of consumer prices (see Kommersant, June 3).

The output of the indicator is slightly above 6%, however, it is a surprise. And the increased core inflation (6.04%) already unambiguously indicates the fundamental factors behind the rise in prices – it is not yet known how long-term they are.

In May to April, the growth in consumer prices accelerated everywhere (see graph), and taking into account the seasonality, it was not noticeable only in services, as evidenced by the estimates of the Ministry of Economy in the June picture of inflation. The ministry explains the spike in inflation from 0.5% in April to 0.7% in May (taking into account the seasonality) “by the strengthening of pro-inflationary factors associated with the external economic situation” – the rise in prices for food and metals, partly by the April weakening of the ruble (apparently, the effect the transfer of external prices to internal prices has become noticeably faster).

In May, food prices rose fastest due to fruits and vegetables, meat, dairy products and buckwheat. Meanwhile, nothing supernatural happens to vegetables. “The situation on the vegetable market is stable, and we have not observed any deviations from the average long-term trend this year. After the seasonal rise in prices, they are already declining in a number of categories, ”says Mikhail Glushkov, director of the National Union of Fruit and Vegetable Producers. He expects that during June, as soil vegetables emerge, they will quickly fall in value. The Ministry of Agriculture believes that prices for meat are now stabilizing as well. However, the head of the Ministry of Economy, Maxim Reshetnikov, said in an interview with the Financial Times: “To say that world food prices have stabilized and reached their peaks, I think … no one will give such a guarantee now.” The department largely agrees with the thesis about the “import” of inflation in the Russian Federation and the important role of market expectations in this. The minister reiterated that there are no supporters of price regulation in the government, and even subsidizing food production is a temporary measure.

Explanations for the fundamental reasons behind the increase in price pressures are increasingly varied.

Thus, at the just held SPIEF, First Deputy Prime Minister Andrei Belousov said that “the inflationary wave that hit the world economy quite unexpectedly” is a sign of not only a weakening of monetary policy, but also structural changes (they “appear as a result of a sharp weakening of contacts between people, decrease in the cross-border flow of goods, capital, labor, and so on ”), and the scale of these changes“ cannot yet be estimated ”. Finance Minister Anton Siluanov also reported there about “overheating”, an element of which is high inflation, which requires the normalization of budgetary and monetary policy. Indeed, double-digit growth in consumer lending and steadily growing consumption amid a lack of income growth is reminiscent of the 2018–2019 situation. And the head of the Central Bank Elvira Nabiullina again announced a “gradual return to a neutral rate.”

SPIEF participants expect an increase in the influence of the state on the economy

The move towards it now will obviously be faster, given that inflationary expectations are at a four-year high. Already on June 11, the Board of Directors of the Central Bank is likely to once again raise the key rate by 50 basis points. “At the beginning of 2017, when there was a comparable level of inflationary expectations of the population, the key rate was at the level of 10% against the current 5% … The Central Bank will most likely decide to reduce this imbalance, taking into account the possible unwinding of the” inflationary spiral “,” the senior believes debt market strategist at SberCIB Investment Research Igor Rapokhin.

Alexey Shapovalov, Dmitry Butrin

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