Page 23 - RusRPTOct19

4.2 Inflation
During the budget process economy minister Maxim Oreshkin announced that MinEkonomiki had reduced its inflation forecast for the second time in one month. The ministry now projects that inflation will hit 3.6% by year-end and 3% in 2020.
This is noticeably lower than the Bank of Russia’s forecast, which stands at 4.0-4.5% for 2019, and economists are skeptical of the figure. They note that 3% inflation should only occur if officials pursue tight monetary policy and fiscal consolidation amid economic stagnation. Putin responded to Oreshkin’s announcement by taking a jab at the government’s poor execution of the national projects: the central bank expected 700 billion rubles to be injected into the economy, but they have been delayed. This is the result, Putin explained.
Regardless, the draft budget will now use 3% as its 2020 inflation assumption, instead of the CBR’s 4% target. What does this mean in practice? Certain expenditures between 2019 and 2020 will be indexed by one percentage point less than planned. Interestingly, despite the reduction in the government’s inflation expectations, a recent Levada Center survey reveals that the public’s greatest fear is rising prices (59% of respondents).
Consumer prices declined 0.2% m/m in August, versus zero inflation in August 2018. In y/y terms, inflation eased to 4.3% in August from 4.6% in July, implying that the m/m figure was in fact just below -0.2% m/m. Core inflation (excluding seasonally volatile fruit and vegetable prices, regulated tariffs and fuel), a proxy for monetary inflation, remained at 0.2% m/m. As a result, annualized core inflation (the three-month average of m/m core inflation extrapolated over 12 months) dropped to 2.5%. Given the current inflation dynamics, Sberbank downgraded its year-end inflation forecast to 3.8% y/y,
23 RUSSIA Country Report October 2019 ww.intellinews.com