The Continued Depreciation of the Ruble will Inevitably Result in a Seed-Up of the Inflation Rate

A new spiral of depreciation of the ruble exchange rate in October-November 2014 will result in a new speed-up of the rate of inflation early in 2015 which situation makes it virtually infeasible to achieve the 2015 target level of the inflation rate (4.5%) set in the Main Guidelines of the Unified State Monetary Policy. The main factors which keep in check the inflation rate are a lack of pressure on prices on the part of the demand, as well as measures taken by the Central Bank of Russia to toughen the monetary policy.

It is to be noted that in October, the inflation rate in Russia accelerated: on the basis of the results of the month the consumer price index amounted to 0.8% (0.7% in September 2014), which is 0.2 p.p. higher than the respective index of 2013. As a result, a year-on-year inflation rate amounted to 8.0%. In October 2014, the baseline inflation rate amounted to 0.8%, which is 0.1 p.p. lower than the respective index of the previous year. In 2014, growth in the baseline inflation rate from 5.5% year-on-year in January to 8.4% in October in a situation of lower rates of indexation of regulated tariffs on services of natural monopolies as compared to 2013 points to substantial growth in the level of prices on the consumer market; the above growth is justified by geopolitical tensions and depreciation of the ruble.

In October, prices on food products increased by 1.2% as compared to September 2014. It is to be noted that a substantial factor of growth is introduction of restrictions on supplies of some types of agricultural and food products from the US, Canada, Australia, Norway and the EU.

Also, there was growth in rates of prices on horticultural products (from -1.2% in September to 2.8% in October), butter (from 0.6% in September to 1.2% in October), milk and dairy products (from 0.8% in September to 1.2% in October), grain and beans (from -0.1% in September to 0.1% in October) and sunflower oil (from -0.4% in September to 0.2% in October). There was slowdown of growth in prices on meat and fowl (from 2.9% in September to 1.3% in October), fish and seafood (from 1.9% in September to 1.8% in October), eggs (from 1.9% in September to 1.0% in October), alimentary products (from 0.5% in September to 0.2% in October), alcohol (from 0.6% in September to 0.5% in October), bred and bakery products (from 0.5% in September to 0.3% in October). Prices on white sugar kept falling (from -3.0% in October to -4.0% in September).

In October, prices and tariffs on paid services to households increased by 0.6%, while in mid-September they rose by 0.3%. In October, tariffs on housing and public utilities services rose in general by 1.0% (0.6% in September). There was slowdown of growth in prices on services in education (from 4.7% in September to 2.0% in October), pre-school education (from 1.1% in September to 0.9% in October) and medical services (from 0.6% in September to 0.4% in October).

In October, growth rates of prices on non-food products amounted to 0.6% and were equal to the respective index of September. Prices kept growing on footwear (from 0.9% in September to 1.1% in October) and clothes (from 0.8% in September to 1.1% in October). There was growth in the rates of prices on motor petrol (from 1% in September to 1.2% in October) and electric and other household appliances (from 0.4% in September to 0.6% in October). Appreciation of prices on tobacco products slowed down (from 1.7% in September to 1.1% in October).

Generally, in October the contribution of food products, nonfood products and prices and tariffs on paid services to households to year-on-year growth rates of the inflation amounted to 50.1%, 25.8% and 24.1%, respectively.

Аlexandra Bozhechkova, Researcher