Deflation continues while economic activity seemingly stabilizes

RUSSIA ECONOMICS - In Brief 24 Aug 2022 by Alexander Kudrin

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Rosstat reported another week of deflation as in seven days ending on August 22 the consumer price index fell by 0.15% w-o-w. It brought the MTD deflation to 0.38%. Inflation YTD decelerated to 10.56%. It is likely that in August, deflation could exceed 0.5% m-o-m and bring down the y-o-y inflation to below 15%. The recent week showed that deflation stemmed primarily from the segment of fresh fruits and vegetables. At the same time, prices on durable goods started to rise slowly across the board (note that deflation in June in July was recorded across a much broader range of products). The latter may hint that consumer demand is stabilizing, and if so, after the end of the harvesting season, the inflation will return, albeit it will be very moderate. Hence, the CBR has plenty of room to cut the key rate further in mid-September. The fact that consumer demand is stabilizing was also supported by industrial statistics. In 7M22, Industrial output was up by 1.0% y-o-y, while in July alone, it was down by a mere 0.5%. Rosstat also reported that seasonally adjusted industrial output was up by 1.2% m-o-m in July. In 7M22, mining was up by 0.9% y-o-y, while manufacturing was down by 1.1% y-o-y, which is not as deep as was the previous months. Even car manufacturing, which nearly collapsed in May, showed some sign of breathing. A closer look at recently published industrial statistics may prompt us to write a separate report on this matter in the next couple of days. Evgeny Gavrilenkov Alexander Kudrin