Economic growth looked decent in October but accelerated inflation will erode it at year-end

RUSSIA ECONOMICS - In Brief 02 Dec 2021 by Alexander Kudrin

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Rosstat reported that in 10M21 and October, the aggregate output of the five basic sectors (industry, transport, trade, construction, agriculture) was up y-o-y by 6.3% and 6.5%. This measure of the country’s economic activity is usually more volatile than GDP but is calculated monthly, while the latter is a quarterly indicator. The difference between the two of them may be quite significant, but the tipping points are usually close to each other. The fact that the 10M21 and October, y-o-y numbers are close to each other indicates that the 2020 low base effect is largely over and the growth trajectory is likely to be relatively smooth going forward – both for GDP and the aforementioned aggregate output.As inflation accelerated, real growth of retail sales moderated having increased in October by a mere 4.1% y-o-y. In 10M21, the y-o-y figure looks much higher (7.9%). As inflation remained high in November, retail sales growth that month may be moderate even more in real terms.Note that Rosstat reported that inflation in seven days ending on November 29 reached 0.46% w-o-w implying 0.96% inflation MTD and 7.51% inflation YTD. The final November 2021 inflation figure will be higher than was in November 2020 which will suppress the real growth of retail sales. In November y-o-y inflation may get close to 8.4%. Inflation dynamics illustrate that CBR's efforts to contain inflation by hiking the key rate had little effect amid a massive budgetary spending spree. Budgetary stimulus looks excessive both in 2020 and 2021, especially as it was and is being provided at the very end of each year.Construction was up y-o-y by 5.3% in 10M21, freight transportation increased by 5.7% ove...