More key rate hikes as inflation accelerate

RUSSIA ECONOMICS - In Brief 21 Oct 2021 by Alexander Kudrin

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According to Rosstat, in seven days to October 18, inflation w-o-w reached 0.26%, having accelerated from 0.22% seen in the preceding seven days. Inflation MTD reached 0.63% in eighteen days of October (5.98% YTD). Consumer price inflation beat all earlier expectations and is likely to be at least 0.9% m-o-m in October alone and move to around 7.9%YTD if not higher.Russia’s domestic inflation accelerated rapidly mainly due to domestic factors, such as a sudden increase in pre-election spending that targeted pensioners and some categories of public sector workers. In September, for instance, all pensioners got a kind of a one-off election bonus that effectively increased their monthly pension that month by around 70%. No need to mention that over 40 million pensioners were reluctant to save this additional money (at a negative interest rate). Hence the bulk stimulus ended up on the consumer market. It is equally clear that neither local producers nor importers could increase production or imports proportionally overnight. Hence the high rate of growth of consumer prices all across the board. Global factors, such as disruptions in supply chains, or higher energy prices, had a limited effect on Russia’s inflation.As the coronavirus keeps spreading fast in Russia (which remains largely unvaccinated) and the daily incidence rate beats records almost every day (on October 21, over 36K new cases were reported) the government announced non-working days during the first week of November. Such a measure might help to temporarily bring inflation down, but after this “mini lockdown” it will catch up as overstimulated demand won’t evaporate.In the rest of the year the m-o-m inflati...