Rosstat again recorded deflation

According to Rosstat, from June 4 to June 10, deflation was recorded in RUSSIA, it amounted to 0.14%. During the reporting period, most food products became cheaper, especially fruit and vegetable products: tomatoes (minus 8.87%), cucumbers (8.34%), white cabbage (6.39%). The price of margarine rose most noticeably over the week (plus 0.85%), semi-smoked and boiled-smoked sausage - by 0.72% and polished rice - by 0.47%. 

According to the Ministry of Economic Development, from June 4 to June 10, inflation in the country slowed down to 16.69% in annual terms against 17.02% a week earlier. According to the ministry, the main contribution to this was made by the active decline in food prices due to the ongoing deflation of fruits and vegetables and a decrease in prices for most durable goods.

The decrease in prices for goods and services of the consumer basket by 0.14% compared to the previous week reflects a temporary change in prices in the most volatile and seasonal goods, such as fruits and vegetables (minus 3.1% week on week) and air travel (minus 2. 3%), with virtually no change in prices for durable goods (growth in prices for non-food products compared to the previous week was zero), says the HEAD of the Center for Economic Forecasting Gazprombank Daria Snitko. According to her, excluding these volatile goods, the weekly increase in prices amounted to +0.05%, reflecting the most stable dynamics of consumer price increases.

Sergei Zaversky, head of the analytical research department at the Institute for Comprehensive Strategic Studies (IKSI), believes that deflation should not be surprising. According to him, the economy is in a situation where domestic demand has largely declined. The population, after some surge in purchasing activity in February-March, switched to a savings model of behavior. Lending as a demand driver also does not work. In addition, the strong growth of the ruble exchange rate also affects.

Deflation in July-August in Russia is a traditional phenomenon, says Georgy Ostapkovich, DIRECTOR of the HSE Center for Market Research. In weekly inflation, fruit and vegetable products have a very large weight, the price growth for which in June-July and partially in August always slows down greatly, he recalls. “This is due to the domestic harvest entering the market, which knocks down import prices. Consequently, all inflation is also decreasing,” Ostapkovich commented. He also believes that the fall in real disposable incomes of the population could affect inflation: people buy fewer goods or cheaper products. According to Ostapkovich, zero inflation or deflation may remain in Russia until about mid-September, but imports will become more active in autumn, which will stimulate price growth. 

The problem is not that prices simply do not rise for several weeks, but why this happens, Zaversky emphasizes. “Now we see a contraction in the economy and the absence of clear guidelines for its recovery, and in this situation, investment activity will be low,” he commented. Accordingly, the expert continues, there will be no reorientation of the economy to the domestic market, and this is fraught with protracted stagnation. At the same time, it is necessary to achieve low inflation rates not due to weak demand, but due to the fact that the supply of goods and services expands faster than demand, but at the same time, both of them show positive dynamics.

Snitko says that in theory, deflation discourages current consumption, and the lack of demand reduces investment in the development of production. But it is too early to talk about sustainable deflation in Russia. Ostapkovich notes that one should not directly link consumer inflation and GDP, especially when it comes to the weekly indicator. “When GDP is created, you need to look not at consumer prices, but at producer prices,” the expert adds. According to him, in April, producer prices rose by 35%, and this is a negative signal. 

On food prices in Russia in the first half of 2022

On the eve of the head of the Ministry of Economic Development Maxim Reshetnikov, in an interview with the Rossiya-24 TV channel during the St. Petersburg Economic Forum, he said that inflation in Russia by the end of 2022 will be significantly lower than the 17.8% indicator included in the forecast for socio-economic development in 2022-2025 , and the decline in GDP may be slightly lower than the forecast - 7.8%. “It is quite possible that we look at the May data, and the depth of the recession may turn out to be slightly lower than we expected,” the minister added (quoted by TASS). He also noted that, in general, current macroeconomic indicators indicate that the Russian economy is responding to sanctions pressure better than expected in March this year.