Analyst: «High inflation is economic hypertension!»
Prices in Russia continue their unbridled growth. The hope that inflation will slow down in the summer, as it sometimes happened in previous years, is not justified. Rosstat data for July clearly showed that it is only gaining momentum. Inflation has increased by more than 1% in a month, over 5% since the beginning of the year, and has exceeded 9% in annual terms. The population is faced with rising prices everywhere: food in stores, medicine in pharmacies, housing and utilities in bills, and tickets on public transport are becoming more expensive. What explains this situation and will the authorities be able to curb the accelerating inflation? Mark Goykhman, an analyst at the Capital Skills Financial Academy and a candidate of economic sciences, told MK about this.
Chasing the “snowball”
— It turns out that in the economy now, different inflation factors are driving each other. First of all, this is «buyer inflation» or «demand inflation». When the volume of money in the economy grows faster than the mass of goods, these goods become more expensive. Consumers have growing demand in accordance with the money they have, and sellers raise prices. Now in the economy there is a significant increase in government orders, budget expenditures, a shortage of workers, and because of this, a significant increase in wages and other incomes for many categories of the population. For example, according to Rosstat, the average salary by the beginning of summer was 86,384 rubles per month. The increase over the year is almost 20%.
And Russians are also increasing lending, which also increases consumer demand and prices. In the first half of 2024, the total volume of loans to the population rose by 3.4 trillion rubles. The growth of new loans jumped by 31% in a year.
So we get a «snowball» — people generally have more money, they go to stores with it, but the mass of civilian products cannot catch up with this «snowball». Prices have to catch up. Especially with a reduction in imports of goods… And it decreased by 9% in the first half of the year compared to 2023.
— The more expensive goods become, the more people believe that this will only increase. Last July, Russians believed that prices would rise by 12.4% over 12 months. And in 2023, this expectation was «only» 11.5%. These are the data of the Central Bank of the Russian Federation based on population surveys. And if we assume that life will become more expensive faster, then it is logical to buy more «here and now», which further increases the demand for goods, loans — and, therefore, prices.
Overall, the money supply in the economy has grown by 18.7% over the year to August 1, according to the Central Bank of the Russian Federation. All this together is fueling «buyer inflation» — more than last year.
— Yes, there is also a second side — “inflation of sellers”, or costs. Enterprises have their own “headaches”. An increase in wages, interest on loans, the cost of transportation and resources — everything increases the costs of companies, they are forced to raise prices in order to survive. And sanctions restrictions on exports reduce the flow of external money into the country and budget revenues. In addition, monopolism and insufficient competition in many areas support high prices.
I will add that importers have their own problems. Difficulties with payments abroad and logistics, increased tariffs and commissions on them, more expensive deliveries through «parallel imports», rising exchange rates against the ruble — all this is forced into prices. This is also more pronounced than last year. But imports are not only Chinese cars and Turkish tomatoes. There is also equipment, materials in production… So it turns out that all these factors together are significantly raising prices this year compared to last year.
Twice as much as normal
— Rather, it is a manifestation of circumstances that are difficult to fully foresee and calculate given the current geopolitical, sanctions, and economic turbulence, when life gives new sudden “introductions” every month. Rigorous mathematical models do not withstand rapidly changing practice.
— Inflation is good when it is low! When its increase stimulates producers to produce more products and services for sale at slightly higher prices. When it increases profitability and business profits. If prices rise moderately, this is normal and generally positive for the country's economy. In Russia, inflation within 4% is acceptable — this is, as is known, the goal of the Central Bank.
But the situation changes if the rise in prices breaks out of the norm, outpaces the rate of labor productivity, and significantly increases costs. This limits the output of goods and services, undermines the capabilities of buyers, and the financial situation of people. These are the laws of economics, which are now characteristic of many countries struggling with inflation. In Russia, as we can see, it is more than twice as high as normal.
We can draw an analogy with the human body. For example, with low blood pressure — say, 90 to 60, it needs to be raised, stimulated, and treated. So that a person can live and function normally. But then the pressure rises, and already 150 to 100… Then it needs to be contained, reduced, otherwise the danger to the general condition is high again. The same is true for health in the country's economy. High inflation is hypertension of the economy!
Limited deflation
— Yes, deflation this year is limited. According to Rosstat data as of August 12, since the end of July, prices have fallen on carrots (-5.6%), beets (-5%), potatoes (-3%), tomatoes (-3%), bananas (-2.3%), onions (-1.6%), cucumbers (-2.4%). But, for example, cabbage has risen in price by 3.7% and even apples by 0.1.
The summer fall in prices for fruits and vegetables is weaker this year than traditionally in this period. It is hampered by general factors of consumer price growth. And they have grown by 5.1% since the beginning of the year, while last year by this period they only grew by 3.7%.
Restrictions on imports of agricultural products and materials for their production, reduced supplies, increased transportation and utility costs, labor shortages in the agricultural sector — all this is reflected in rising prices. Frosts in May 2024 also play a role.
Therefore, it is likely that the seasonal decrease in prices for products of the new harvest will be insignificant and selective.
— In the non-food sector we can expect the greatest rise in prices for goods, the bulk of which are imported. This is due to problems in processing payments in banks, currency conversion, and sanctions restrictions on supplies.
Cars, primarily Chinese ones, electronics and household appliances, and a number of building materials will probably become noticeably more expensive in the coming months.
High stakes are not a panacea
— The Central Bank's key rate is a powerful tool, but it is far from a panacea for inflation. Increasing interest rates on loans is intended to reduce excess demand and limit the ability to lend to consumers, which stimulates prices. In addition, it increases the attractiveness of deposits, which also takes «hot» funds away from the consumer market. All true, but the rate increase is mainly aimed at «demand inflation». It does not limit other factors that drive up prices. Such as the excess of budget expenditures over revenues and civilian output, limited free capacity and labor resources, obstacles to supplies from abroad and payments for them, rising prices for materials, utilities, transport and other services.
So yes, a high rate cannot save us from the specific Russian inflation. Moreover, the rise in the cost of loans additionally limits production output, increases producers' expenses, that is, to some extent stimulates «cost inflation». But the Central Bank has limited tools to influence prices. The reasons for their growth go far beyond the capabilities and powers of the Central Bank. Therefore, «don't scold the pianist — he plays as best he can.»
— All the inflationary factors we talked about will continue to operate in the coming months. Additionally, the expected weakening of the ruble by the end of the year may increase prices. Geopolitical circumstances remain unpredictable.
But there are factors that will play against you. The key rate will appear with a certain time lag in the medium term. It can be further increased. Problems with foreign economic settlements will probably gradually begin to smooth out; stubborn businesses on both sides will gradually find ways to overcome restrictions. The rate of increase in unsecured income may decrease.
In addition, the statistical base effect is at work. After all, when calculating inflation, prices of the same period last year are compared. And in July 2023, their growth was relatively low — 4.3%. But then, in the autumn-winter of last year, prices rose by 6-7.5%. Compared to them, this year the increase may not be so sharp.
Taking all this into account, we can assume that in 2024 it will be possible to keep inflation at single digits. But this is ambiguous…
Well, “normal pressure” at 4% will probably have to wait no earlier than 2026.
— If you allow me, I I’ll do this in verse:
In the economy there is hypertension,
And the Central Bank is trying to give out the medicine.
But there is hypertrophy of costs and demand,
It does not allow us to win this fight yet.