Russia’s Central Bank has warned about the threat to control over inflation due to rising levels of inequality and the disappearance of families with an average income level that are most sensitive to interest rates and prices. About it reports Bloomberg with reference to data of the Central Bank, which should be published on Wednesday, October 19.
According to the Agency, the drop in retail sales in Russia continues a record 21st straight month, while real disposable incomes are falling annually by 7%.
“The decline of the middle class, bad for controlling inflation, because they are higher risks associated with fiscal policy,” said a former adviser to the Central Bank, chief economist of “Renaissance Capital” Oleg Kuzmin.
He added that “the demand will be more sensitive to budget decisions,” because any aid will cause an immediate effect on the expenditures of poorer families.
In data regulator States that the deeper social inequality reduces the price elasticity in the demand and complicates the task of controlling inflation. Less wealthy families, as a rule, no savings and access to credit are spending money primarily on necessities and hard to react to changes in interest rates, noted the Central Bank. Families with more income, on the contrary, indifferent to the changes because they spend too small a share of their income on superior goods.
“Families with an average income are particularly sensitive to changes in interest rates and consumer prices, which in turn encourages producers to adapt to changes in their demand”, reads the data of the Central Bank.
Earlier, on October 12, the Governor of the Bank of Russia Elvira Nabiullina called the high current inflation and said that Russia needs a different economic model. “There must be savings, which become investments,” she said.
The Chairman of the regulator said that investment in the new economy model is possible only with a low inflation rate of 4%.
On 16 September the Board of Directors of the Central Bank decided to reduce the key rate from 10.5% to 10% per annum. Later Nabiullina has said that he believes a further reduction in the key interest rate in 2016 is unlikely.