Pay for the entire list, please // Industry in May asked the economy to compensate it for all the problems of the past

The May record of YoY growth in the industrial price index is unlikely to be broken in the foreseeable future: everything coincided – post-view demand, the base effect, and the global inflationary rally. As a result, industrial prices in May exceeded last year’s by 35.3%. We are talking about numbers in price lists, not in contracts – the volumes of settlements in the economy, according to the Central Bank, are common, symptoms of a cooling of mood in the industry have been observed since last month. The Industrial Commission of the State Council announced the development of an information system for monitoring industrial prices, however, it is unlikely to be relevant to the appearance of its prototypes, even if what is happening is not a coincidence of factors, but a systemic shift in pricing not only in Russia.

As expected, the May Producer Price Index, published yesterday by Rosstat, contains an almost unlimited number of figures that will boggle the mind. In terms of year-on-year, the index in May was 135.3%, in the same dimension, prices in mining more than doubled (209.9%) – this is a historical record since the high inflation of the early 1990s, and is unlikely in In the coming years, the May indicators of the index will be at least closely comparable. In fact, nothing fantastic is happening: in May by April 2021, all prices in industry increased by an average of 2.3%. In production, they increased in this dimension by 1.4%, in energy and gas supply – they did not grow at all, in water supply and utilization – they grew by 0.1%, and only in processing they are comparable to the consumer price index – 3.1% per year. by the year.

The record in industrial prices is a reflection of the anti-record in May 2020, when a systemic lockdown in the Russian economy and extreme uncertainty brought down positions in all industrial price tags, and the prices of oil futures went into the negative zone.

May 2021 is the culmination of these effects: prices in industry are winning back both the end of a protracted lag behind growth, which would correspond to normal demand, and inflation for a whole year, and in a number of industries, price declines in 2015–2019, and in all industries there are new hopes for postform profits. Recall that the industrial price index (like the consumer price index) is prices in price tags and price lists “off the street” for new transactions, taking into account discounts and other conditions, the prices of payments under contracts are lower, and for industrial prices this is more relevant than for consumer prices. inflation, where the problem of accounting for discounts, cashback and “club” prices back in 2018-2019 was recognized by Rosstat as not urgent.

Meanwhile, the data of the Bank of Russia on payments in May does not show a significant increase in industrial inflation, however, due to seasonal problems (the May weekend of 2021, the industry worked in a different mode than a year ago, and the Central Bank generally calculates the indicators of actual payments from 11 to 31 May ) specific numbers do not make sense – the regulator stipulates that even this data is very noisy.

Industrial inflation looks much simpler in sectoral terms.

The main record is prices in oil and gas production, a 3.3-fold increase in prices year-on-year, this is the result of the OPEC + agreement, as well as a 1.4-fold increase in prices in large chemicals. In addition, prices in ore mining increased 1.6 times over the year, in metallurgical production – 1.3 times, in the production of coke (and petroleum products) – 1.8 times: as the rating agency ACRA quite convincingly showed in its report “ Do metallurgical companies have super-profits? ” a week ago, metallurgists, who reduced (rather than increased) their dividends for 2020, only continue to restore the normal price level of 2018. All these measurements are year-on-year, in fact, the only thing that can seriously concern us is the outstripping rise in processing prices in May. But even there, however, the scale of the “catastrophic rise in prices” on closer examination does not cause surprise. Thus, the auto industry, where prices increased by 10.1% year-on-year, did not raise prices on average in May. In fact, almost everything that can be seen in the industrial price index in May is a sharp 11.5% increase in prices in the price lists of metallurgical production.

Industrial recovery in Russia may slow down price increases and their regulation

Note that in the industry expectations indicator, calculated by the Gaidar Institute, the symptoms of a cooling mood were already in May. “Inflationary expectations of the Russian industry in June ceased to gain“ optimism ”, having decreased after the May record by 7 points and returned to the April level. However, the balance of price forecasts remained positive, which indicates plans to increase selling prices to their June level, but not as much as they rose in May versus April, ”the Gaidar Institute’s latest bulletin says. In June 2021, the base effect will no longer be as strong as in May.

The thesis that what is happening – “cost inflation” and the phenomenon of “non-monetary inflation”, apparently will be central in the summer discussions about what is happening.

In principle, there are three systemic explanations for the peak of both industrial and retail prices, which are nonlinearly and complexly related to each other, and these mechanisms can work together. The first, which is officially adhered to by the Bank of Russia: what is happening is a consequence of changes in demand, prices rise in parallel with sales volumes, anticipating future price increases, consumers are actively lending, buy earlier than planned, and seek to restore stocks “before prices increase.” The second is the forced behavior of producers who cannot remain profitable with current prices.

Why the Bank of Russia raised the rate and is even ready for a tough monetary policy

In the latest review of consumer inflation, Central Bank analysts believe that what is happening is a “transfer of costs to prices,” only facilitated by an increase in demand (note that in the speech of the head of the Central Bank Elvira Nabiullina on June 11, the thesis about “cost inflation” was directly refuted – what is happening is considered unambiguous by the board of directors of the regulator “Inflation of demand”). Finally, there is a third explanation: structural shifts that change relative prices, in this case, these are both supposed “post-like” changes in the Russian economy, and inflation, “imported” through price increases all over the world (a surge in inflation in the spring-summer of 2021, in mainly through commodity prices – a completely non-Russian problem). This thesis is now opposed by the fact that all prices are growing (only the prices of services lagged slightly in May), while structural changes require a highly uneven rise in prices for some groups of goods in the economy and their stability for others, in fact, such changes reflect imperfect calculation “Consumption basket”, which is used to calculate price indices, and the lag of its correction in time from the change in the numbers in the price tags.

In any case, “non-monetary factors of inflation” is a phenomenon that does not disprove monetary inflation: an increase in the central bank’s key rate cannot generally “not work”, but the effect of decisions in the field of monetary policy is very inertial.

In the fall of 2021, when the effect of an increase in the key rate from the beginning of the year to June by 1.25 percentage points will become visible, the economic circumstances will be fundamentally different. And even if we are really talking about a systemic increase in prices for oil, steel, coal, building materials and wheat around the world in relation to other goods and services, price indices cannot grow for a long time under the current monetary policy even taking into account the base effect, some prices they are obliged to fall – bank credit is limited, as are the savings created in the economies during the pandemic. However, the longer such changes are (the very existence of which has not yet been proven), the longer the period of instability and price growth will last, in spite of everything, including common sense – it can be six months or two or three years.

Meanwhile, industrial prices have already become the subject of discussion of the Commission of the State Council of the Russian Federation in the direction of “Industry” – its head, Tula Governor Alexei Dyumin, yesterday announced the development of the concept of a federal law on pricing with the creation of a unified national price monitoring system (quoted by Interfax). “Prices are rising not only for essential goods, but also for raw materials for industrial enterprises. The increase in prices for metal and building materials negatively affects the development of entire industries. In addition, there is a threat to disrupt the implementation of national projects in terms of construction and commissioning of facilities, ”he said. It should be noted that the creation of such a system is unlikely to take less than six months; by the fall of 2021, while the current trends continue, the industry should already face the fact that no one else can satisfy its price demands with money. In the meantime, in May-June, the price play looks very impressive. The day feeds the whole year, those who have not raised prices now may not be able to do this until the end of the year. Buyers know this, so in the summer of 2021, the super-stormy GDP recovery may slow down – this is a natural self-regulation mechanism, the announced prices are no longer affordable for everyone.

Dmitry Butrin


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