Page 23 - RusRPTMay21

2.9 Russian population inflation expectations “through the roof” and at their highest level since 2016
The Central Bank of Russia (CBR) released the results of a survey on inflation expectations conducted by inFOM in early April that show consumers expections for inflation have “gone through the roof,” according to a comment by Sova Capital analysts in a note on April 27.
In April, inflation expectations rose to their highest level since the end of 2016 and exceeded those following the VAT hike in 2019.
“According to the survey, observed and anticipated inflation have risen rapidly in April. While observed inflation has risen to 14.5% y/y in April vs. 12.7% in March, 12-month ahead expectations have risen to 11.9% y/y in April vs. 10.1% y/y in March,” Sova Capital said. “Notably, the subgroup without savings witnessed a steeper rise in both observed and anticipated metrics (16.4% y/y in April vs. 12.4% y/y in March in the observed component and 12.5% y/y in April vs. 10.6% y/y in March in the expected component).”
Inflation has surged in the last six months as a result of soaring food prices and the pass through effect from the devaluation of the ruble caused by an oil price shock last March. But as CBR expected, inflation has finally started to slow down, with consumer price inflation (CPI) dropping from 5.8% y/y in March to 5.5% y/y in mid-April.
Nevertheless CBR governor Elvira Nabiullina has aggressively increased rates twice this year, surprising the market both times as she attempts to head off inflationary forces. The CBR hiked rates a bigger than expected 50bp at its April meeting bring the prime rate to 5%.
One of Nabiullina’s concerns is that consumer expectations of rising inflation become unanchored rising too far too fast, which is itself an inflation pressure upwards on prices. Her tough measures of the last two meetings are partly designed to assure the public the CBR has inflation is under control and the rate will come down.
“Inflation expectations are quite sensitive to rising prices for certain goods. This time, according to CBR, expectations were primarily influenced by some food items, as well as by gasoline prices. The ruble’s weakening in March and early April also affected respondents’ perceptions,” Sova Capital said.
Until these expectations abate analyst say the CBR could continue to hike rates aggressively in the coming meetings.
23 RUSSIA Country Report May 2021 www.intellinews.com