Page 38 - RusRPTJun21

view that price growth is starting to slow and that year-end inflation should be about 4.6% y/y in 2021.
The Russian population is currently expecting inflation to soar to 14.5%, despite the fact it is currently 5.5% and looks like it is starting to fall.
For a people that lived through the years of hyperinflation in the 90s, rising costs in times of crisis is something of a bogey man and inflation fears consistently rank as one of the issues people worry about more than anything else.
Russian President Vladimir Putin has given the government until July 1 to stabilize domestic prices for goods. Officials led by Prime Minister Mikhail Mishustin are already considering several possible ways to come up with the cash,. Options include tapping the government’s $182bn rainy-day fund, easing spending restrictions under a self-imposed fiscal rule, diverting money from other projects and raising taxes. The efforts are so secretive that much of the work is being done in a high-tech basement war room across the Moscow River from Russia’s White House government headquarters jokingly known among insiders as “the bunker.” The facility lets Mishustin and his team collect vast amounts of data from across the government and break down bureaucratic silos to speed decision-making, these people said.
The CBR released the results of a survey on inflation expectations conducted by inFOM in early May on May 28.
According to the survey, observed inflation continued to accelerate from 14.5% y/y in April to 14.8% y/y, while anticipated inflation over the next 12 months moderated from 11.9% y/y in April to 11.3% y/y in May.
Importantly, there was a divergence in the estimates of observed inflation between groups with savings and without. The former saw an increase in price growth (12.4% y/y in May vs. 11.8% y/y in April) while the latter saw inflation falling from the April spike of 16.4% y/y to 16% y/y in May. According to CBR, such a difference between the two groups is due to the higher sensitivity of the group without savings to basic products such as sunflower oil, sugar, milk and dairy products.
The qualitative balance of answers points to a further increase in the assessment of acceleration in past inflation and expectations of a slower increase in consumer prices in the future. More respondents believe that inflation is unlikely to reach 4% by YE21 (58%, up 2ppts vs. April) or over the next three years (53%, up 3ppts vs. April).
In April, inflation expectations rose to their highest level since the end of 2016 and exceeded the expectations that followed the VAT hike in 2019. As can be inferred from household expectations, the trends in May point to the peak of inflation passing, in our view. Given their adaptive nature, we think expectations could remain elevated for a significant period and keep inflation momentum high. As a result, this could require the further tightening of the monetary policy by CBR at upcoming meetings after it hiked the key rate 50bps in April. We think that the current trends are compatible with a potential 25bps hike in
38 RUSSIA Country Report June 2021 www.intellinews.com