Deflation shows that the Russian economy is not developing.
According to the latest data from Rosstat, from 14 to 20 May (for the first time since August 2021) in Russia was recorded weekly deflation (lower prices) – at 0.02%. Even for the Central Bank, this came as a surprise. Analysts believe that this is a sign of economic decline.
What does deflation mean?
- Some experts explain deflation by the fact that people stopped buying goods in stock and demand “normalized”.
- Others believe that weekly deflation can be called a coincidence. Especially since prices fell by an average of only 0.02%, ie within the statistical error.
- But there are those who believe that this is a wake-up call, indicating a downturn in the economy.
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Why are prices falling?
- Optimists (those who expect further inflation, but also economic growth) name two reasons:
First, in early March The Central Bank raised the key rate to a record 20%. This has made loans very expensive and deposit rates attractive. People took money for deposits, not spent it on purchases. As a result, by the end of May, demand for such goods collapsed.
Second, in early March, sellers raised prices very sharply after a record fall in the ruble, making a “crisis markup.” Currently, due to low demand, this markup is being reduced.
- Pessimists say that the population has started to save and refuses to buy, saving money for a “rainy day”. They say that we should not worry about rising inflation, but about the fact that the economy is shrinking rapidly. After all, thousands of Western companies have left Russia, production has stopped, and the country does not import imported goods.
“Deflation can be a dangerous signal: the population has not only stopped panicking, but also started saving a lot, realizing that there is an even more severe crisis ahead.” Russia's economy has been growing in recent years.… The economic downturn means rising unemployment, declining incomes and falling living standards, “said analyst Olga Shamina.
What's next?
The Russian authorities, apparently, also assume a negative scenario. It is no coincidence that the decision was made to unschedule the indexation (increase) of pensions, the subsistence level and the minimum wage from June 1. This should stimulate consumer activity, ie people will start buying more and the economy will start to grow. However, the Minister of Finance Anton Siluanov reacted immediately, urging not to increase spending, as there are difficult tasks ahead – “restoring the economies of new territories and ensuring the army's combat readiness.”
18-23%. And, most likely, the Central Bank is right in its expectations of inflation, not deflation. In June, many people, having received more money, will run to the shops.
Read also: The ruble in Russia is strengthening, but prices are still rising: we tell why
Earlier it was reported that Russia's government has decided to engage in import substitution through Western sanctions. The import substitution program, which was adopted in 2014, has been updated. However, this threatens to regress the economy and production of Russia.
