29 Apr 2022 16:54

Annual inflation in Russia could be 10%-12% for next 12 months - Nabiulluna

MOSCOW. April 29 (Interfax) - Annual inflation could be 10%-12% for next 12 months, Central Bank Governor Elvira Nabiullina told reporters.

Pro-inflationary risks still prevail, but the pendulum could wing the other way, she said.

"According to our forecast, consumer prices will go up by 18-23% over the year, but this figure comprises the earlier surge in prices beginning from late February, which was most significant in March. Future inflation, that is, annual inflation for the next 12 months, will be much lower as of April 2023. Our baseline forecast assumes that it will range from 10% to 12%," Nabiullina said.

"Prices will mostly adjust to the changed conditions this year, and to a lesser extent - next year. As a result, annual inflation will slow down to 5-7% next year and return to the target in 2024. Inflation will decrease and return to 4% owing to the pursued monetary policy," she said.

"Our forecast takes into account all fiscal policy decisions approved and announced by the Government. Updating our forecast in the future, we will factor in all additional decisions as they may have a significant effect on our forecast," Nabiullina said.

"The current situation is extremely uncertain. Simultaneously, supply trends and the factors driving aggregate demand are also changing dramatically. Today, supply is declining faster than demand, but this trend might change in the future. This means that proinflationary and disinflationary effects are both possible. Therefore, it is crucial for the Bank of Russia to make prudent decisions factoring in the changing balance of risks. At the moment, we consider that the scenario where proinflationary factors and risks prevail is the most probable one. Nonetheless, the pendulum might swing the other way, and in this case demand will decline more quickly than supply. This might occur in a situation where consumers still prefer to save as much as possible, while supply already starts to recover," she said.

Stabilizing inflation expectations and improving savings sentiment among households indicate that the risks of an inflationary spiral have decreased Nabiullina said.

"Over the last two weeks of March, current inflationary pressure has stabilized after its surge in early March. However, it remains high, Nabiullina said.

"In April, households' inflation expectations have returned to the levels of mid-2021. According to the surveys of households, expected inflation is below the observed price growth, meaning that people believe that prices will no longer rise as quickly," the governor of the Central Bank of Russia (CBR) said.

"Companies' short-term price expectations have edged down as well, though they remain higher than last year," Nabiullina said.

"The stabilization of inflation expectations and an increase in households' propensity to save mean a decrease in the risk that the inflationary spiral might get out of control," the CBR governor stressed.

The situation on the Russian labor market is reasonably stable, but the market is experiencing an adjustment through forced leaves and part-time employment, Nabiullina said.

"The situation here [on the job market] is currently quite stable. By March 2022, the employment rate dropped to its record low. Today, the labor market is adjusting to the new conditions primarily through forced leaves, part-time employment schemes, and reduced bonuses," Nabiullina said.

The current transformation of the economy brings new challenges that the labor market must face, she said.

"The structure of employment will be definitely changing, which might require a redistribution of labor resources both between industries and professions and across regions. We will assess how these processes will influence the pace of the structural transformation of the economy and, accordingly, inflation processes," Nabiullina said.