– Let’s start with a purely practical question from our reader: how to secure your savings in such a difficult time, what should be done for this?
– Don’t panic. I hope that inflation will start to decline in the fall, especially in food prices.
Next, you should seriously attend to the planning of the family budget, with a clear definition of priorities: what needs to be addressed first, second, third. Those who have problems with paying off loans (the total debt burden is at a historical peak in Russia) will have to at least give up unnecessary spending. But since everyone runs the risk of being trapped in debt, I would recommend that you be extremely restrained about expensive purchases – and these are not only apartments, but also cars that have risen in price with terrible force.
Given the current inflation rate, one cannot dream of any growth in real disposable income. You should also not be led to proposals to transfer funds from one currency to another. Perhaps, you can still invest in federal loan bonds (OFZ): there the yield is one and a half percentage points higher than in the maximum rate on bank deposits.
In general, if your salary does not exceed the Russian average (about 40 thousand rubles), you need to exercise maximum caution, refrain from excessive risks, rely on your own feelings, and not recklessly listen to those who want to cash in on you elementary.
– In 2020, inflation in Russia was largely triggered by a sharp depreciation of the ruble, as well as a rise in food prices, and one of the reasons was the rupture of supply chains in trade. Today the ruble is feeling much better, but prices are still going up. So what’s the deal?
– The real exchange rate of the ruble practically does not affect the dynamics of inflation. In June, it strengthened by 2.7%, and since the beginning of the year – by 4.2%.
Our foreign economic indicators are now in a serious plus. The foreign trade surplus is a quarter higher than last year, and the current account, which is directly reflected in the exchange rate, has strengthened 1.7 times. Since we do not see the effect of the weakening of the ruble, at least until the end of the year it will not be transferred to domestic consumer prices. Since there is no effect, then there is nothing to endure.
As for external factors, everything is more serious here. The dynamics of inflation is always determined by the ratio of supply and demand in individual markets, for individual product groups. If you have one part of this equation sharply reduced, the balance is upset.
The 2020 lockdown resulted in a significant supply contraction. Plus, the rupture of supply chains, both in retail and among manufacturers, who faced an acute shortage of components, really affected. As a result, prices were raised – in April (for four months year-on-year) by 27.5%, and in May by 35.3%. The traditional July increase in housing and communal services tariffs also made a significant contribution to inflation. In general, the situation is rather unstable, because of which every citizen is forced to either turn on a saving mode, or radically revise the structure of his family budget, or postpone expensive purchases.
– Do you agree with the statement of the head of the Ministry of Economic Development Maxim Reshetnikov, who said that “inflation is, by and large, imported from the world food markets”?
– For the realities that developed in April, this statement was more or less true. Today – hardly. According to the UN Food and Agriculture Organization, in June, world food prices fell by 5.4%. However, sunflower oil is alarming, having risen in price by 1.3%. In general, across the main commodity groups, including metals, we see clear signs of a price reversal.
But what is happening now with inflation in the United States? In June, consumer prices there rose 5.4% on an annualized basis, a record since 2008. And if inflation in the United States accelerates, then the Federal Reserve will go to reduce the buyback of securities from the market and will begin to raise its base rate faster. Not in 2023, as expected, but in 2022. And this means a completely different alignment with the yield of American securities, with the redistribution of financial flows – between developing and developed economies.
The consequence of this scenario will be the aggravation of the problem of corporate and sovereign debt in the world as a whole. And, of course, this can hit Russia as well, since the departure of non-residents and hot money from our market will provoke a weakening of the ruble. Which, in turn, will drive up domestic prices.
– Rosstat recorded in June an explosive growth in the cost of vegetables that make up the borscht set: almost 60% for beets, 37% for carrots and 20% for potatoes. What is the reason for this?
– This is again the consequences of last year. It was then that there was a sharp contraction of the borscht recruitment proposal. Things are not much better today. Additional risks are created by the uncertainty associated with the new harvest of a number of crops. Due to unfavorable weather conditions, the sowing (and hence the harvesting) campaign has been shifted by one month. Therefore, it is now difficult to predict how much buckwheat or young vegetables will be received by agriculture and how these indicators will affect prices.
However, the seasonal reduction in price is still beginning to sink into the market, however, with the exception of carrots and cabbage. Cucumbers and tomatoes are getting cheaper by about 3-5% per week. It is clear that in order to fight inflation overflowing the banks, the Central Bank will continue to raise the key rate.
– The reader of “MK” asks: what other goods and services are at risk? Does it include imported household appliances and electronics?
– Let’s see what is happening with container shipping now. Since the beginning of the year, the cost of their freight has increased by more than 20%. And for some types of cargo it is even more important. Due to the third wave of the pandemic in the five leading ports of China, loading has been stopped, ships are in roadsteads, unloading on average for 35-40 days. This subtracts a very large volume from the global container turnover.
There is no end in sight to this container crisis. As a result, non-food durables, primarily household appliances, electronics, gadgets, may rise in price by 15-20% by the end of the year. Accordingly, in the second half of the year, Russians run the risk of facing completely different prices for large-sized household and electronic appliances – televisions, refrigerators, washing machines. All this is transported in containers by sea.
As for gadgets, there is another unpleasant moment: the global shortage of chips and microprocessors. According to the estimates of the largest manufacturers, this problem will not be closed until at least the first quarter of 2022. So, if someone needs to update their line of similar devices, it is better not to procrastinate and spend money on them right now.
– How do you assess the latest government measures to regulate prices, in particular, duties on the export of grain and sunflower, as well as the December agreement on freezing prices for sugar and sunflower oil?
– Here you have to understand each specific episode very scrupulously. The December agreement was justified in the circumstances prevailing at that time. Another thing is that such measures cannot be delayed for three quarters, turned into a long-running story, as is the case with sunflower oil. Otherwise, price imbalances arise in the market for all other product groups.
As for the unlimited price damper for grain exports introduced from April 1, it is now more or less starting to work. The mechanism consists of two parts – a “floating” export duty and an instrument for returning funds to agricultural producers. But there is no complete clarity yet, it will appear at least in a few months. Of course, it is very difficult for traders and grain producers to navigate in conditions when the duty changes weekly. With buckwheat, everything will be clear at the end of the harvest, which will have to be brought in a month later than usual – due to the shift in the sowing and harvesting campaigns. And if we talk about gasoline, then the damper introduced in relation to it works quite effectively. The weekly price step is approximately the same – 0.1–0.2%.
– To what extent does the Central Bank manage to target inflation by raising the key rate?
– The current inflation rate (6.56%) goes off scale for the Central Bank’s target of 4%. Now we can estimate the actions of the regulator very roughly – only from the point of view of the probable period of approaching this goal. The picture turns out to be very intricate and resembles a very rugged terrain.
According to the classic, the decision to change the rate affects the economy, the cost of financial transactions with a lag of three to six months. But there is a feeling that this lag has somewhat shrunk, and we can already talk about weeks. Today we have a rate of 5.5%, which is quite a lot. At the same time, a big question arises: if we do nothing, do not touch the rate, will we not push inflation to storm new heights, will we not prolong the current period of extremely high prices? These prices hit the pockets and the standard of living of every citizen of Russia. And if inflation is not suppressed, then after the current rebound in 2021 (just over 4% of GDP), the economy will lose one and a half percentage points in 2022. And this is really bad, since all social obligations of the state, from pensions to benefits for schoolchildren and the unemployed, fall into the risk zone. Therefore, the Central Bank should move to a tougher rate increase in the range of 0.5–0.75%.
– But this medal has a downside – a slowdown in economic growth, right?
– Indeed, such a tightening of monetary policy, as a rule, is combined with some cuts in budget spending. This year, on the one hand, we see a fairly high rate with an upward trend, and on the other, a surplus of the consolidated budget of the Russian Federation by almost 1.2 trillion rubles. That is, fiscal consolidation is working great, we are accumulating a financial safety cushion, there is more than enough oxygen for the future, but there are no incentives for economic growth. Additional injections into the economy never just pass for it, invariably provoking a rise in prices.
Last year, citizens received at least a trillion rubles more different benefits and payments than usual. This fueled demand and led to a rise in consumer inflation. As for the forecasts for the year, our greatest optimists work in the Ministry of Economic Development. They raised their inflation forecast from 4.3% to 5%. I am inclined to think that the real range for the year will be 5.5–5.7%.
– Will small and medium-sized businesses survive another lockdown?
– What do you mean “survive”? Of course, on the whole it will not disappear: some enterprises will leave, others will come. But the problem is that the new lockdown will certainly not provide any incentives for additional business development. Judge for yourself: in the West, small and medium-sized businesses create 70% of jobs and 50% of GDP, and in Russia – 20% each. This is, in fact, the bar where we need to reach.
Another lockdown will set us back a couple of years from the point of view of the development of small and medium-sized businesses. And we already have insufficient support from the state, programs of concessional lending for business are stuck, there is no continuation.
It is also unclear how the current story with the pandemic will end, especially since WHO recently announced a third wave. The main problem is not the risk of a lockdown (we already have the experience to adapt to it), but the fact that support for small businesses remains largely a verbal intervention, beautiful but empty words. There is no adequate regulatory framework. But we are talking about one of the factors of social stability, strengthening the potential of the middle class, reducing informal employment.