Inflation is up in the aftermath of the weakening of the ruble amid year-end budgetary spending spree

RUSSIA ECONOMICS - In Brief 18 Nov 2020 by Alexander Kudrin

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Rosstat reported that during the seven days ending on November 16, the w-o-w inflation remained at 0.2% and was the same as from November 3 to 9. Inflationary pressure increased in November and it cannot be ruled out that monthly inflation could reach 0.7-0.8% implying that inflation y-o-y could jump to 4.4% versus 4.0% in October. In December inflation is likely to move even higher. Massive budgetary spending that has to occur in November and December, as well as the weakening of the ruble a few months ago, seem to be major reasons for rising inflation. Inflation may remain over 4% until mid-2021, which means lowering the key rate until then looks now unlikely.It is yet to be seen how much the Ministry of Finance will be able to spend this year. According to the revised federal budgetary spending plan which was inflated this year by around R3.0trln relative to the pre-pandemic” 2020 budget, in November and December, the government needs to spend over R5.6 trln rubles. Meanwhile, in 10m20 reached only R16.9 trln. That being said, in the last two months of the year the government has to spend one-quarter of the annual budget, which is not inflationary alone, but uneasy as well. If the government spends less this year and decides to allocate more funds in 2021, then inflationary pressure may ease sooner.Evgeny GavrilenkovAlexander Kudrin