Back in 2011: why is Russia for the first time in five years prices fell


Rosstat for the first time in five years was recorded in Russia a week-long deflation: in seven days, from 26 July to 1 August, prices fell by 0.1%. From the beginning, they grew by 4%. Over the past week fell 10 food products, including fruits and vegetables, which became cheaper on average by 3%, follows from the materials of Rosstat. Most reduced prices for fresh tomatoes and cucumbers — 8.5% and 7.4% respectively. 0.1% fell lamb, sausage, sausage, fish, flour and wheat.

Deflation is a rare phenomenon in Russia, where last year the growth of prices measured in double digits. The last time before this week, deflation was recorded during the second week of September 2011. On the other hand, the decline in prices in the last week of July was not such a surprise. It coincided with the expectations of Ministry of economic development, said the representative of the Ministry, earlier “small” deflation in August did not exclude the Deputy Minister of Finance Maxim Oreshkin, head of the Central Bank Elvira Nabiullina admitted weekly decline in prices in the early autumn months or at the end of August.”

The deflation last week was driven by a significant reduction in price of fruits and vegetables, and a slowdown in the growth of prices for industrial goods and certain food items excluding fruits and vegetables, said the representative of Ministry of economic development. In the summer months, prices for fruits and vegetables are traditionally lower, which affects the slowing of inflation, resembles the head of the Economic expert group Evsey Gurvich. But this summer there is a good harvest, and the factors that in 2014 and 2015 to disperse inflation, came to naught. In the summer of 2014 the first was the effect of the devaluation of the ruble, and then the prices started to be reflected and a food counter-sanctions imposed in August 2014. This year in the last week of July has affected more strong decrease of prices for fruits and vegetables than a year ago, adds Gurvich.

Stable ruble

In the last week of July was observed a mixed dynamics of the main food items, but accelerated deflation in fruit and vegetable products “outweighed”, providing a week-long deflation, points out chief economist at ING in Russia and CIS Dmitry Field. In addition, stabilized prices following the traditional summer increase in tariffs is already reflected in the first three weeks of July.

Among the factors that led to deflation for the first time in a long time, the Field will include the expectation of a record grain harvest and a relatively stable dynamics of the ruble in the last few weeks. Although the ruble has ceased to grow in July — after the “verbal interventions” of officials, from the beginning, he still gained about 10%.

The main limiting factor for the growth of prices is weak consumer demand, which can especially be felt in the segment of non-food products and unregulated services. More to say about this monthly data that Rosstat will publish this week, says Field. In the past two years a barrier to deflation was the volatility of the exchange rate, elevated inflation expectations and a higher increase in tariffs, he says.

As in 2011

“The likelihood of deflation in August there. More accurate estimates can be given after the release of accounting information on inflation in July,” — said the representative of the Ministry of economic development. At this rate the mild deflation may be fixed in August, I agree Field. “It is important that inflation returned to the level in may after a June surge, and this trend may continue. By the end of the year we can go down to the rate of 6%,” he says.

If this happens, the picture will be similar to those for 2011. In that year, deflation was observed for three consecutive months — July, August and September. Then the total index of prices of goods and services decreased to negative values in 0.01%, 0.24% and 0.04 percent, respectively, according to Rosstat.

Inflation by the end of 2016 will be 6.5%, it will slow down due to low consumer demand, according to the basic forecast of Ministry of economic development. But at the end of June, Deputy economy Minister Alexei Vedev said that inflation for the year is expected at level of 6%, perhaps even slightly lower — at 5.9%”. In June, the Central Bank also lowered its inflation forecast for this year to 5-6% (December 2016 to December 2015), in comparison with the March forecast of 6-7%. The Bank of Russia noted “certain proinflationary risks associated with elevated inflation expectations, the absence of a strategy for fiscal consolidation and uncertainty about the indexation of wages and pensions”. July 29 CB, justifying the decision not to lower the key rate, indicated that although overall inflation is slowing, “stopped falling core inflation and seasonally adjusted indicators, monthly growth of consumer prices and inflationary expectations.”

Last year the inflation amounted to 12.9%, which was the highest figure since 2008.