Inflationary pressure remains low so far

RUSSIA ECONOMICS - In Brief 10 Nov 2022 by Alexander Kudrin

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Rosstat reported that inflation in October was 0.18% m-o-m which brought inflation YTD and y-o-y to 10.66% and 12.63%. The final inflation in October calculated on a broad consumption basket appeared a bit lower than whet Rosstat reported a few days earlier having provided an estimated based on a w-o-w inflation statistics (compiled on simplified consumptions basket, i.e., a narrower set of goods and services). Rosstat also reported that weekly inflation in the seven days ending on November 7, was just 0.01%, w-o-w pointing to lower weekly inflation than in October. Despite rising budgetary expenditures inflationary pressure remains low and it could be that inflation in November may stay around 0.2% m-o-m. If so, then it will fall to around 11.8% y-o-y this month with a good chance to decline further y-o-y in December (possibly to below 11.5%). The CBR will have to solve the dilemma – whether to stay on hold amid rising global interest rates and rising geopolitical risks, or cut the key rate on December 16 (next BoD meeting) and somehow provide more stimulus to the economy. It looks as though inflationary pressure remains subdued as the bulk of amended expenditures are possibly allocated to the defense sector with no immediate pressure rising. Meanwhile, Minfin reported that as of November 2, it spent R22.0973 trln from the federal budget and by the end of the year it plans to spent R6.3569 trln, a very high number, which will bring total 2022 expenditures to R28.4496 trln, i.e., well above the early amended figure of R27.0 trln planned earlier. Therefore, this spending spree may cause inflationary pressure to rise in early 2023. Evgeny Gavrilenkov Alexander Kudrin