Russian annual inflation could return to target of 4% no sooner than 2023 - Economic Development Ministry
MOSCOW. Nov 19 (Interfax) - The current high uncertainty with energy prices worldwide, and in general with global inflation, carries the risks that annual inflation in Russia will slow down to a target of 4% no sooner than in 2023; however, the chance of it reducing in 2022 is not yet ruled out," Deputy Economic Development Minister Polina Kryuchkova, who oversees the ministry's macroeconomic forecast, said in an interview with Interfax.
"There is currently a very strong run in assessments. In terms of risks, yes, at the moment, pro-inflationary factors dominate the world. Could the trend turn quickly and unexpectedly? There is such a risk, too, so I am not going to talk about the timing of the return to the target, because there is much uncertainty, first of all, with world prices," Kryuchkova said about when the ministry expects the return of annual inflation in Russia to the target of 4%.
"I believe that the scenario of a return to 4% next year is not ruled out, but there is also a more risky scenario in which such a return to the target next year will not occur," the deputy minister added.
"There are many different factors that affect the inflation rate. It would be more correct to talk about inflation in terms of inflation risks. Yes, we have certain risks associated, first, with the pressure of global prices. We see what is happening with gas prices in Europe, and this, of course, drags a chain behind it, with fertilizer prices, rising food prices, and so on. It is clear that the problem of energy prices could only but affect the cost of generation, and this will translate into prices. There is a global, world problem connected with transportation, and the cost of container transportation has skyrocketed to impossible highs," Kryuchkova said.
"Therefore, we believe that, generally speaking, cost inflation on a global scale has not yet fully manifested itself, that is, the risks here are quite high. The next question is how much will this be transferred to the domestic market? Yes, there are now long-term mechanisms that restrain this transfer, damping mechanisms for wheat, sunflower oil, and they work, they really prevent this transfer. However, in any case, there is still a channel associated with imports, it will not go anywhere, in part, the exchange rate may slightly bring down this pressure, but if on a global scale in dollars a commodity rises in price, not only owing to global demand, but also because of costs, then, of course, this will also affect us, and this is the greatest risk," Kryuchkova said about the risks of global inflation.
"We see that the situation with gas, with energy crisis, is already affecting world prices. The next question is when will normalization take place? Again, different assessments of analysts: if by the end of the heating season the gas price normalizes, then the inflationary impulse will last for some time, but then it will fade. However, if it does not normalize, accordingly, the impulse will be even longer. This is a serious risk, a serious inflationary factor that is present. Plus, supply chain disruptions occur here and there, and pull one or another industry with them," Kryuchkova said about the risk of the impact of the energy crisis on global inflation.
"We have a specific schedule for updating the forecast, but we cannot at any time take and change the forecast. The next iteration we have is in February, March. Now there is much uncertainty, because yes, there is a general trend toward accelerating global inflation, and then the question is stabilization of gas prices. Will they decrease from $1,000 to what level at the end of the heating season? They could fall to $600, and this is one picture, to $400, and this is a different picture," the deputy minister said on the prospect of revising the ministry's inflation forecast for Russia.
The current forecast of the Economic Development for Ministry inflation in Russia in 2021 is 7.4%, in 2022 at 4%.
The consensus forecast of analysts surveyed by Interfax in early November for inflation for 2021 rose sharply to 7.8% from 6.6% in a poll a month ago. At the same time, the consensus forecast for inflation for 2022 has grown significantly up to 4.7% from 4.3% according to a survey a month ago, which no longer fits into the interval forecast of the Central Bank of Russia (CBR) for 2022 at 4%-4.5%.