SERGEI ZUBOV ON THE IMPACT OF INFLATION UNCERTAINTY ON THE RUSSIANS’ MOOD
The Nezavisimaya Gazeta daily published the opinion of Sergei Zubov, Senior Research Associate of the Financial Studies Department, Gaidar Institute on whether the Russian economy would be able to keep within the projected inflation rate of 20%.
After a surge late in February, the rate of inflation is slowing down week on week in Russia, but is speeding up year on year and is already close to 17%. Further, Russian consumers tended explicitly to save more in the past two weeks as compared with their activity in the relevant period of the previous year. A detachment of prices from the RUR/USD exchange rate was another well-marked specifics. Though owing to the Russian monetary authorities’ measures the US Dollar is falling against the Russian rouble, prices keep appreciating and even considerably for some categories of goods.
“Accumulated inflation expectations late in 2021 and early in 2022 caused by the shock of tougher sanctions imposed in February 2022 have led to a surge in the rate of inflation. Also, it is quite possible that business is taking advantage of the situation to receive super profits,” Sergei Zubov noted.
After a feverish spike in March, consumers have been reducing their purchases of goods for a second week running by contrast with their behavior last year. At the same time, according to the data of the RF Ministry of Economic Development, there was actually a skyrocketing rise in prices for a few weeks. For example, from March 26, 2022 till April 1, 2022, prices appreciated for onion (14%) and cabbage (13%); for reference: price increases for these products were in the range of 6%-7% in March 2021 as a whole. Prices for carrots increased by 8.5% just within a week. The inflation situation remains quite uncertain for the time being. In particular, it is not yet clear whether the Russian economy is able to keep within the average inflation rate of 20%. You may remember that the forecast of the inflation rate of 20% was officially specified in the RF Central Bank’s documents based on the outputs of economists’ macroeconomic survey.
“With stabilization of the macroeconomic situation, one could safely predict inflation of maximum 20% or even less. However, the Russian economy is currently quite sensitive to noneconomic pressures and it seems these pressures are not completely exhausted,” Sergei Zubov says.
Sergei Zubov does not rule out new waves of panic buying. “Seasonal factors may be excessive and emerge in terms of feverish demand. Much will depend on the policy pursued by the business which is likely to take advantage now and then of the risk of shortages, thus affecting price dynamics,” Sergei Zubov predicts. But not everything is limited to market participants’ appetites, there are also objective factors which drive prices upward.
At the same time, assessments of Russian consumers’ propensity to another panic buying in case of new external shocks turned out to be quite uncertain. In Sergei Zubov’s opinion, it is premature to say that the Russians have depleted their resources in full: “people keep quite a lot of funds in their savings accounts and may spend them any time on purchasing.”
“Accumulated inflation expectations late in 2021 and early in 2022 caused by the shock of tougher sanctions imposed in February 2022 have led to a surge in the rate of inflation. Also, it is quite possible that business is taking advantage of the situation to receive super profits,” Sergei Zubov noted.
After a feverish spike in March, consumers have been reducing their purchases of goods for a second week running by contrast with their behavior last year. At the same time, according to the data of the RF Ministry of Economic Development, there was actually a skyrocketing rise in prices for a few weeks. For example, from March 26, 2022 till April 1, 2022, prices appreciated for onion (14%) and cabbage (13%); for reference: price increases for these products were in the range of 6%-7% in March 2021 as a whole. Prices for carrots increased by 8.5% just within a week. The inflation situation remains quite uncertain for the time being. In particular, it is not yet clear whether the Russian economy is able to keep within the average inflation rate of 20%. You may remember that the forecast of the inflation rate of 20% was officially specified in the RF Central Bank’s documents based on the outputs of economists’ macroeconomic survey.
“With stabilization of the macroeconomic situation, one could safely predict inflation of maximum 20% or even less. However, the Russian economy is currently quite sensitive to noneconomic pressures and it seems these pressures are not completely exhausted,” Sergei Zubov says.
Sergei Zubov does not rule out new waves of panic buying. “Seasonal factors may be excessive and emerge in terms of feverish demand. Much will depend on the policy pursued by the business which is likely to take advantage now and then of the risk of shortages, thus affecting price dynamics,” Sergei Zubov predicts. But not everything is limited to market participants’ appetites, there are also objective factors which drive prices upward.
At the same time, assessments of Russian consumers’ propensity to another panic buying in case of new external shocks turned out to be quite uncertain. In Sergei Zubov’s opinion, it is premature to say that the Russians have depleted their resources in full: “people keep quite a lot of funds in their savings accounts and may spend them any time on purchasing.”