Inflationary pressure to remain high in 4Q21

RUSSIA ECONOMICS - In Brief 01 Oct 2021 by Alexander Kudrin

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Rosstat reported that inflation w-o-w was 0.29% in seven days ending September 27. Inflation reached 0.49% and 5.20% MTD and YTD, which is above expectation. In September, inflation y-o-y will well exceed 7.0%, prompting the CBR to raise the key rate further.Inflation remains high as budgetary expenditures increase massively this year – in part due to growing pre-election and promised post-election spending. The Ministry of Finance acknowledged that on the back of strong growth of the federal budget revenues expenditures will be raised from initially planned R21.5 trln to nearly R24.1 trln, i.e., by more than R2.5 trln (by over 10% relative to the initial plan). As of 8M21, the federal government spent R14.8 trln, and overall spending from September to December should reach R9.3 trln, i.e., over R2.3 trln per month on average, which is much higher than in the previous months. Even though it is not yet clear how this spending will be allocated over the remaining part of the year, there is little chance for inflation to come down considerably in the next four to six months. Note that even with such a massive increase in spending the federal budget is expected to be nearly balanced as the Ministry of Finance expects revenues to reach R23.8 trln. That is R5.0 trln more than was initially planned. In the next two years, the Finance Ministry expects the budget to be in surplus as revenues will keep growing.On top of that, the CBR reported that in August consumer credit continued to grow fast despite the key rate hikes. It increased by 1.9% m-o-m which resulted in a 15.3% YTD increase. Therefore, macroeconomic policy looks pro-inflationary as the supply side by no means could...