Inflation in Russia in July 2011
According to Rosstat, the consumer price growth rate as demonstrated by July’s results was 0 %. Moreover, in the last week of July a deflation of 0.1 % was noted. The principal cause of inflation deceleration was the seasonal drop of foodstuff prices – food deflation amounted to 0.7 %.
According to Rosstat, the consumer price growth rate as demonstrated by July’s results was 0 %. Moreover, in the last week of July a deflation of 0.1 % was noted. The principal cause of inflation deceleration was the seasonal drop of foodstuff prices – food deflation amounted to 0.7 %.
The main trends that were visible in May on the food market continued to persist in June. Traditionally, the most marked drop was displayed by prices for fruits and vegetables (- 9.2 %). Besides, there was a decline in prices for sunflower oil (- 0.2 %), groats and legumes (- 0.9 %). The growth rate of prices of non-food commodities in July remained at the same level as it was in June (0.4 %). It should be noted that July also saw further slowdown in the growth rate of petrol prices, which rose by 0.5 % against +1.7 % in June and + 6 % in May. Prices for TV and radio appliances also continued to decline (- 0.2 %). Prices of commercial services rendered to the population were increasing in July at practically the same rate as in the previous month – 0.6 %. Over the first seven months of 2011, the inflation rate amounted to 5 % (against 4.8 % in 2010). At the same time, in per annum terms in continued to decline, having dropped to 9 % against 9.5 % one month earlier.
Thus, inflation deceleration is a traditional seasonal phenomenon. Evidently, this year’s seasonal deflation will not be negatively influenced by a draught-induced aggregate supply shock similar to that experienced last year. However, in spite of a slowdown in the growth of consumer prices, the base inflation index remains, rather alarmingly, at a comparatively high level. In July 2011, the base consumer price index climbed to 0.4 % (against + 0,3 % in June and 0.4 % over the same period of 2010). Nevertheless we believe that in the medium term the monetary pressure on inflation will become lower. The growth rate of money mass М2 continues to decline: over the period of January – June it amounted to 3.7 %, while during the same period of 2010 it was 10.7 %. We think it likely that, in absence of any negative shocks, by the end of this year the resulting CPI may become as high as 7.5 – 8 %.
It should be noted that at a recent meeting of the Bank of Russia’s board of directors it was decided that the interest rates on its operations should be kept unchanged. In all probability, if the downward trend displayed by the inflation rate persists, the Bank of Russia is not going to change its interest rates over the next few months. However, it is quite likely that the interest rates may be raised by 0.25 – 0.5 p.p. before the year’s end in response to a price surge in the autumn.
P. V. Trunin – Candidate of Economic Sciences, Head of Monetary Policy Department