Page 7 - RusRPTJul21

The latest inflation reading remained well above the central bank's 4% target and it was the highest inflation rate since October of 2016. The CBR has already hiked rates three times this year and is widely expected to hike again in July; CBR governor Elvira Nabiullina warned that the next hike could be anything between 25bp and a full 100bp as inflation has significantly exceeded the CBR’s expectations. She has also floated the idea of revising the inflation target from 4% where it has been for the last five years.
The Kremlin is hoping that the summer will bring prices down again, especially food prices as dacha fruit and veg ripen as it is food prices that are pushing inflation up.
Falling incomes remain a problem too. Real disposable incomes dropped 3.6% during 2020, as the pandemic saw a temporary jump in unemployment and wage cuts for millions across the economy. It was still falling in the first quarter of this year, down by 3.6% year-on-year.
The government has launched a RUB400bn ($5.5bn) social support programme of extra spending to deal with the most vulnerable. The 12 national projects are the main fix to this problem and after the programme start to gather some momentum in 2019 real incomes did briefly grow, only to be knocked back a few month later by the first of the series of shocks that hit in 2020. All-in-all with the extra spending and the re-launch of the state investment projects real incomes could turn positive this year. The government is likely to drop more money on the social sector ahead of the Duma elections on September 19 that will also help.
Politically things have been going better than at any time in the last six years. Russian President Vladimir Putin met with US president Joe Biden in Geneva in what was dubbed a “constructive” summit. However, the meeting was only the first step in returning to a working relationship.
The relations with the US will be easier to fix as they are of a pragmatic nature and Biden is more focused on China and his domestic agenda. An attempt by German Chancellor Angela Merkel and French President Emmanuel Macron to hold a similar EU-Russian summit fell at the first fence as the EU relations are normative and so much more difficult to mend. Plus there are several members of the EU implacably opposed to Russia and any substantial decision to change the relationship with the EU needs a unanimity of votes. So going forward Russia will have continue to work with the EU at the bilateral level where as least the two biggest powers of German and France are willing to talk.
Finally the Duma elections in September are being to look over everything else. Having disposed of all the opposition and now aggressively closing down any media that dares to criticise it, the Kremlin is very likely to win the majority in the Duma it is seeking, but unless it addresses and deals with the underlying problem of the falling standards of living pubic resentment will continue to build slowly until it finally explodes in new big protests.
7 RUSSIA Country Report July 2021 www.intellinews.com