​Russia’s inflation remains elevated

RUSSIA ECONOMICS - In Brief 08 Jul 2021 by Alexander Kudrin

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Rosstat reported that in June, inflation m-o-m and y-o-y reached 0.69% and 6.5% accordingly, which remains above expectations. Several factors keep inflation elevated. A too rapid rise in nominal wage, tight labor market, rapidly expanding consumer credit are just a few of them. On top of that, Russia’s effectively closed borders overheat consumer demand as Russians spend locally the money they used to spend on foreign travels. Note that even last year, when GDP contracted by 3.0%, nominal wage grew in December by 11.3% y-o-y. In April 2021 (the latest available figure nominal wage increased by nearly 15% y-o-y. In May, registered unemployment fell to just 1.8%. As wage inflation remains very high, the CBR has nothing to do but hike its key rate more. Even though such a decision to be taken amid an over 2.0% m-o-m growth of consumer credit will be painful for the borrowers and negative for economic growth, it may encourage people to start saving money again. In 5M21, household deposits with banks shrank by 0.4%. The fact that in June, both the food and non-food prices grew by over 7.0% y-o-y clearly illustrates that demand remains overheated across the board. Service prices increased less, as regulated prices have been kept at bay so far.Meanwhile, weekly inflation in early July also remained high. GKEM Analytica will publish a report on rates and inflation in the next few daysEvgeny GavrilenkovAlexander Kudrin