08.06.09

In agreement with Reuters’ prognosis for 2009, analysts expect inflation to decrease sharply. As of Friday, inflation stood at only 10.8%, or 3% less than for the month of April. Decreased demand and seasonal factors are also slowing price growth. Since April, budget expenditures have been rapidly rising. The ruble may additionally lose value in the third and fourth quarters of this year, making the prospect of deterring inflation unlikely.

Inflation forecasts differ according to which proposed scenario may be adopted to alleviate the crisis. The official government 2009 forecast sees prices rising by nearly 13%. At the beginning of the year, when compared with other forecasts, this looked very optimistic. In late April, the consensus-forecast reported by Reuters was 13.8%. In April, the budget was amended to include large-scale anti-crisis measures. However, the average estimate of inflation fell to 10.8%. The Central Bank recently declared that prices could fall as low as 12%, and that, in August and September, there will also be a seasonal deflation due to the price reductions on fruits and vegetables.

Inflation has already begun to slow down. The Ministry of Finance predicts that May inflation will only be .7 to .8%, versus 1.4% in May of last year. Renaissance Capital has also commented on the decline in the money supply and demand for cash. Budget expenditures, corrected in April, will not have an effect on inflation. The only thing that may lead to price increases next year is the possibly of a decline in value of the ruble. Economists believe that because of the growing budget deficit and the impossibility of truncating state expenditures, the authorities may take actions on the market to lower the value of the ruble.

However, some believe that the growth of budget expenditures this year will have an impact on inflation. The Chief Economist of Alpha Bank states: “In the coming months we will see inflation decrease to 12%.” Right now inflation is about 13.5%, according to RBK Daily. The economist continued: “Nevertheless in second half of year there will be the essential inflationary risks connected with financing the budget deficit with the Reserve Funds.” Economists of ING Bank predict that in 2009 prices could potentially grow 13%. ING claims that price increases will slow during summer and that prices will only increase in June and July by .6%. Of course, they agree, that prices will be affected by seasonal factors and the any decline in the ruble’s value. But toward the end of summer, the inflation rate could necessitate injecting more of the Reserve Funds into the economy.

Decreasing demand and rising unemployment may constrain prices, but they will hardly force sellers to revise their price policy as there is not enough competition on Russia’s markets. According to the Institute for the Economy in Transition, industrial sectors will keep prices down in May in an attempt to stimulate demand. However, Rosstat, the Federal State Statistics Services, claims that these efforts are not likely to produce a significant effect on consumer prices.

Translated by Alinga Consulting Group.

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Source: Rbc