Witnessing a new wave of inflation, the Central Bank of Russia (CBR) raised interest rates by 100 basis points on September 15.
Prices for food and other basic goods are climbing in Russia. Fruits and vegetables cost 20% more in August than a year earlier, while chicken and eggs rose 15% and 12%, respectively, according to government data. Foreign travel is nearly 40% more expensive after the ruble fell sharply this year.
According to an August survey by polling organization FOM, parents said their spending on uniforms and children's clothes had increased to an average of 15,000 rubles, or about $156, from 10,000 rubles last year.
Overall, inflation last month reached 5.2%, double the 2.3% level in April. To curb rising prices, on September 15, the Central Bank of Russia (CBR) raised its key interest rate from 12% to 13%.
Just last month, the CBR also raised interest rates by a whopping 350 basis points (3.5%), in an attempt to stem the ruble sell-off. The Russian central bank said it was likely to raise rates further as “significant inflation risks have emerged” in the economy.
A man walks past a money exchange office in Moscow on August 14. Photo: AP
A slide in the ruble, booming military spending and persistent labor shortages have all contributed to rising prices in recent months. Russia experienced a bout of high inflation last year, after Western sanctions were imposed. But prices have since cooled.
The resurgence of inflation is a major concern for the government, which is trying to protect its citizens from the impact of sanctions. The Russian economy has weathered its toughest times thanks to massive government spending and the Kremlin’s ability to find new trading partners.
Speaking at the Economic Forum on September 12, Russian President Vladimir Putin said that if the government did not intervene, it would lead to uncontrolled inflation. "It is practically impossible to build a business plan in conditions of high inflation. There are no good and very good decisions here, but difficult decisions," he said.
More challenges lie ahead. According to a central bank survey, inflation expectations among Russian businesses were at their highest in September since the sanctions-induced spike last year.
Sergey Shagaev, a 49-year-old driver in the city of Saransk, about 400 miles southeast of Moscow, said his family had to cut back on meat and vacations. "We have no money left for food and housing. The people I know are poorer," he said. Previously, Sergey Shagaev's family used to vacation in Türkiye twice a year. "But now we have forgotten where Türkiye is," he said with a laugh.
According to a July survey by research firm Romir, one in five Russians plans to cut back on spending on food and other essential goods. About 28% are looking for extra work.
In big cities, where wages are higher, inflation is being felt through more expensive imported goods. Dmitriy, a 25-year-old programmer living in St. Petersburg, said prices for branded clothes, cars and electronics had risen sharply as the ruble fell. His income, on the other hand, had not changed.
“If the ruble continues to fall, I might consider working remotely to earn foreign currency or moving to Europe,” he said. Russian consumers are also finding discounts on everything from backpacks to ketchup on the social network Telegram. The federal antimonopoly agency recently ordered electronics retailers to keep prices on basic products such as televisions, washing machines and coffee makers unchanged.
The impact of the CBR’s monetary tightening to curb inflation and keep the ruble in check may be limited. The big rate hike in August came after Russian politicians publicly criticized the central bank’s policy as too loose, only temporarily boosting the currency. The ruble is still down more than 20% against the dollar and euro this year. The CBR previously estimated that every 10% decline in the ruble would add a percentage point to inflation, as ruble-denominated imports become more expensive.
Before the Ukraine conflict, the CBR influenced the value of the ruble by using its reserves to intervene in currency markets. It also encouraged foreigners to buy ruble-denominated assets, such as government bonds, at higher interest rates. But Western sanctions have undermined those tools. The ruble’s value is now largely supported by Russia’s energy sales.
Dietmar Hornung, deputy managing director at Moody's Investor Service, said higher interest rates "are probably the only lever they (the CBR) have at the moment". "But the effect, especially given the constraints of the Russian economy, is minimal," he said.
Rising inflation has further widened the gap between rich and poor. Wealthy Russians have moved billions of dollars into overseas bank accounts since February 2022, and those savings are worth more as the ruble has fallen in value.
“Rising inflation will only hurt lower-income earners,” said Sofya Donets, a Russia economist at Renaissance Capital. She predicts that weaker demand and less government stimulus after the presidential election will push inflation in Russia down to 4% by the second half of 2024.
Phien An ( according to WSJ )
Source link
Comment (0)