Inflation dynamics in Russia

According to the data of the Central Bank the inflation rate comprised 6,5% at an annual terms in July 2013. As a result indicator value has decreased, comparing with the mark of 7,4% in May 2013. At the same time inflation speed comprised 0,8%, that is a record point for a present year.

First of all, disinflation in July took place due to price lowering of fruits and vegetables associated with prices for food products. While the rate rise occurred entirely due to the price increase for commercial services and utility rates (public utilities rates, Russian Railways).

Furthermore, the core inflation point at an annual terms has also decreased to 5,6% (5,8% in July 2013). Considering that core inflation reflects the part of inflation that directly depends on monetary policy and exchange rate policy, it’s possible to conclude that monetary factor pressure on the inflation rates is insignificant.

At the same time many analysts, taking into account the up-to-date consumer price behavior data, were waiting for slowdown in reference rates of the Central Bank that could promote the economical growth, which has significantly shifted to lower gear. Yet on the meeting on August, 9th the Central Bank didn’t change its rates, having emphasized the goal of saving the inflation decline tendencies and attaining target value. It bears reminding that target range for inflation on 2013 amounts to 5-6%.

According to opinion of many experts, in the second half of 2013 the inflation mark will return to target value. Thus, as per MEDT of Russia, the inflation rate in August will decrease to 6,4% at an annual terms. Moreover, the experts note that there are contributing factors that are necessary for inflation rate decline tendency: current focus monetary policy and lack of negative food market shock.

In addition, it’s necessary to nail down positive trend in order to attain target values in dynamics of inflation expectations. Thus according to results of research conducted by the Public Opinion Foundation under request of the Bank of Russia inflation expectations of population in May-June 2013 continue to decline. As per research under previous estimates of economical situation and significant improvement of current situation analysis, the consumer sentiment index (CSI) has reached absolutely neutral level in May-June 2013. Consequently, it can be concluded that improvement of economical situation analysis and forecasts of inflation, begun in March, endures. Experts predict a further decline of inflation expectations.

At the same time the Central Bank’s Governor Elvira Nabiulina as early as July 2013 said that she didn’t see reasons for delay of inflation targeting that was planned on 2015.

Inflation targeting is understood to be monetary policy, which is focused on inflation rate control, whereby objective value is taken shape and becomes a goal to achieve.

Inflation targeting has approved itself in many countries, but under current situation this implement can become effective only together with rates control, that influence on inflation both directly and indirectly (product cost increases due to growth of rates, as a consequence prices increase, too). Thus in June 2013 at the international economical forum the President offered to limit rate increase by planned inflation rate. With a help of this combination of approaches to solve such a vexed problem, it’s possible to count upon successful result.