Inflation is unlikely to reach last year’s level

25 january 2016 | Rossiyskaya Gazeta

The degree to which the devaluation of the ruble affects inflation is going to depend on the level that at least relative stabilization of the ruble is achieved at. The global oil market has been extremely volatile recently and the Russian FOREX market has followed suit. "However, almost 18 months of a floating ruble have allowed the economy to adapt to this state of affairs at least to some degree, with companies no longer changing price tags whenever the ruble exchange rate changes to any significant extent. In addition, we have just gone through a year-long cycle of rising prices and now the effect of last year’s high base is beginning to kick in, pushing annualized inflation down," Gleb Pokatovich, the Deputy Head of the Analytical Center, told a correspondent for the Rossiyskaya Gazeta.

Gleb Pokatovich
Gleb Pokatovich
Deputy Head

The expert believes that this January’s inflation is much lower than last January’s, at least 4.4 times lower (if the average daily price changes are compared). If this trend continues, the inflation in January may end up being just 0.9% (while in January 2015 it was 3.9%).

"If oil prices remain low long enough and the ruble remains weak, inflation will, undoubtedly, react to that as well. Approximately, I would estimate that every 10% of value that the ruble loses add 1-1.2 percentage points to annualized inflation. On the other hand, the main factor limiting inflation is weak consumer demand, which, has been falling at a record pace on an annualized basis for 11 months in a row," Mr. Pokatovich said.

The expert also noted that the impact of ruble devaluation on inflation takes time and we probably will only see it in February at the earliest. He believes that prices will be rising primarily for items other than groceries.  "Grocery prices have been rising slower and slower recently and I do not think grocery prices inflation will be speeding up in the nearest future. And it is highly unlikely that we are going to see the same rate of inflation as last year, both because of the high base effect and because the decline in consumer demand is still showing no signs of stopping," Mr. Pokatovich explained.

Source: Rossiyskaya Gazeta