Inflation remains elevated

RUSSIA ECONOMICS - In Brief 09 Dec 2020 by Alexander Kudrin
Inflation during the first week of October was at 0.2% w-o-w. Inflation remains elevated starting from November and will stay high in the weeks ahead. It looks as though budgetary spending, which remained moderate in 10M20 (the government spent around 86% of the initial, pre-pandemic, budget during this period). There are no signs that inflation can decelerate in the next weeks as the amended budget assumes additional to the pre-pandemic plan 15% federal budget expenditures, that have started entering the system in November and will reach the peak in December. Due to this spending spree, in recent days, RUONIA fell well below the key rate - to around 3.6%, which is 65 bp below. It is not yet clear whether the government will be able to allocate the amended expenditures fully this year. It looks certain that the economic effect of this additional spending can come mostly next year, while in the previous months, the economy was tackling the pandemic stress mostly on its own. Accelerating inflation that results from a historically high year-end spending spree will reduce the value and the effect of this stimulus on the economy. Meanwhile, inflation may stay elevated in January as well. On the other hand, abundant liquidity will be positive for the markets.Evgeny GavrilenkovAlexander Kudrin

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