Latest figures confirm inflation in Russia fell to an annualised rate of 5.8% at the end of November, with prices growing in that month by 0.4%.
As is now becoming tediously regular, this fall in inflation is reported to have “exceeded forecasters’ expectations”.
Since monthly price growth in Russia this year has been stuck at 0.4% except in the summer months, when inflation in Russia traditionally falls, I am baffled why the latest fall in the annualised rate of inflation should have come as any sort of surprise.
Inflation traditionally rises in Russia in December as the government rushes to meet its end of year spending commitments and as Russian consumers – like consumers everywhere – stock up for the Christmas and New Year holiday. However with the government trying to rein in spending and talking about fiscal consolidation next year, and with the Central Bank deliberately engineering a fall in real incomes in order to suppress inflation, it is likely inflation in December will continue to remain subdued.
With the rouble stable, and with Russia recording its best ever post-Soviet harvest this year (now reported to be 118 million metric tonnes) – something which should take some of the edge off food price growth this winter – all the indications are that the annualised rate of inflation will continue to fall in December, leaving annualised inflation by year end below the 5.8% achieved at the end of November, and possibly closer to the 5.5% predicted by the Central Bank some months ago.
Annualised inflation is likely to continue to fall gradually over the course of the winter and spring of 2017, and may hit the Central Bank’s prediction of 5% by next April.
Reducing inflation below this figure, and bringing it down to the 4% annualised rate that is the Central Bank’s target by the last quarter of 2017 and keeping it there will however be a major challenge, especially if the government and the Central Bank persist in restricting themselves to the exclusively monetary anti-inflation tools they have been using up to now.
Nonetheless it is clear that this remains the government’s and the Central Bank’s objective, and that they have President Putin’s wholehearted support in pursuing it. As I have said many times, they are prepared to trade several years of lower real incomes and lower growth in order to achieve it.
In the meantime Putin, the government and the Central Bank can congratulate themselves on Russia achieving a lower rate of inflation this year than in any year since the fall of the USSR. Indeed, since inflation was already spiralling in the 1980s (though masked by the Soviet practice of fixing prices), it has probably fallen to its lowest rate since the early 1980s or even before.