Three times less than in Europe: annual inflation in Russia for the first time in three years fell to 2.31%

Annual inflation in Russia slowed down for the 12th month in a row and updated a three-year low. Such data on Friday, May 12, was published by the Federal State Statistics Service.

According to the department, in April 2023, consumer prices for goods and services in the country increased by an average of 2.31% compared to the same period in 2022. The last time such a low level of annual inflation could be observed was in February 2020.

"The main reason for the observed dynamics is the relatively high base. Let me remind you that last spring inflation was much higher than it is now, and prices grew at a double-digit pace. Therefore, the current decline in the indicator is largely a statistical effect, "explained Georgy Ostapkovich, director of the Center for Market Studies at the Institute for Statistical Studies and Economics of Knowledge at the Higher School of Economics, to RT.

It should be noted that in February 2022, consumer price growth in Russia was 9.15% in annual terms, but in March the value rose to 16.69%, and in April it reached 17.83% - the highest level in the last 20 years. Such an acceleration of inflation caused an emotional reaction of the financial market and ordinary citizens to the actions of the West.

After the start of a special military operation in Ukraine in 2022, the EU countries, together with the United States and a number of other states, began to impose unprecedented economic sanctions against Russia. As a result, the ruble fell in price against other currencies, the supply of some types of foreign products to the Russian Federation stopped, and the Russians began to massively buy food and goods. All this together provoked a rush jump in prices.

To normalize the situation, the government took a number of anti-crisis measures totaling 12.5 trillion rubles, and the Central Bank more than doubled its key rate (from 9.5% to a record 20% per annum). After some time, the actions of the authorities made it possible to stabilize the situation in the economy and slow down the rise in prices.

So, by the end of the summer, inflation in Russia fell to 14.3%, in December it was about 11.9%, and in March 2023 it fell below the Central Bank's target of 4%. As price pressure eased, the Central Bank began to gradually lower the key rate. In June, the regulator returned it to the pre-sanction level of 9.5%, and later brought it to 7.5% per annum and since then continues to keep it at this level.

"We see that the economy has entered a stable course. There are no such strong fluctuations in exchange rates, trade chains are improving, supply and sales channels have recovered, and production is also growing. That is, we have begun the recovery growth of the economy, and in this situation, prices either stand still or grow very restrained," added Georgy Ostapkovich.

It is curious that April inflation in Russia was several times lower than in those countries that imposed sanctions against Moscow. Thus, in the eurozone, consumer prices have increased by an average of 12% over the past 7 months. For example, in France, Germany, Italy - the largest economies in Europe - the value reached 6.9, 7.6 and 8.8%, respectively, and in the Baltic countries and Slovakia, the figure exceeded 13%, according to the materials of the EU statistical service.

"Europe has been written off"

Inflation in the eurozone began to grow steadily back in 2021 amid the consequences of the coronavirus pandemic. Then quarantine restrictions led to interruptions in the supply of various products, which ultimately caused an increase in prices. At the same time, to support the economy, the European Central Bank (ECB) printed a significant amount of money that was not sufficiently backed by goods.

"As a result of covid restrictions, global economic growth has slowed down. The support measures that were applied in most countries led to an increase in inflation and a further decline in business activity. Nevertheless, even under these conditions, the European economy, which was rather unpromising in terms of growth, continued to receive cheap fuel from Russia, which gave it huge advantages, "Oleg Zhuravlev, general director of the company for creating unique technologies for the oil and gas industry, WORMHOLS Introduction, recalled in a conversation with RT.

• Legion-Media
• © Anthony Rakusen

In 2022, Europe began to abandon Russian energy resources as part of the sanctions policy against Moscow. As a result, there was a shortage of hydrocarbons in the EU market, which led to a rush increase in fuel prices. The rise in the cost of energy, in turn, turned into an even more serious increase in the cost of goods and services.

"In just a year, Russia managed to redirect the main flows of oil and gas to India and China, and now these countries buy raw materials from Moscow at prices below market prices. Europeans, on the other hand, now get only expensive energy resources after processing or after resale. It seems that Europe has been completely written off, and the growth of the economy and welfare at the expense of cheap energy resources from Russia will now only be dreamed of, "Zhuravlev emphasized.

If at the end of 2020 inflation in the eurozone was negative and amounted to -0.3%, then at the end of 2021 the value increased to 5%, and in October 2022 it reached 10.6% - the highest level in history. To curb prices, the European Central Bank, like the Russian regulator, decided to raise the interest rate. Although the ECB had previously kept the bar near zero for a long period, in 2022 it began to rise sharply.

In less than a year, the base rate in the eurozone has already been raised seven times, and now it is 3.75% per annum. The achieved value was the highest since the global financial crisis of 2008.

Traditionally, tightening monetary policy (monetary policy) is considered one of the main tools in the fight against rising prices. Due to the increase in interest rates, borrowed money becomes more expensive for citizens and businesses, consumer and business activity weakens, which puts pressure on inflation.

As a result of the ECB's rapid rate hike, the growth rate of consumer prices in the eurozone began to gradually decline and dropped to 2023.6% in March 9. However, in April, inflation in the region began to accelerate again. Against this background, experts expect further tightening of monetary policy in Europe.

"It is already quite obvious that the financial authorities will continue to raise rates. Their task is to bring inflation to the target level of 2%, and to ensure this, they will continue the course taken. According to our estimates, by the end of the year, the key rate in the eurozone may rise to 4.75-5%," Kirill Dronov, managing director of Alfa-Forex, suggested in an interview with RT.

However, even these actions of the ECB may not be enough to solve the inflationary problems of the region, said Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers. According to him, the European regulator does not have the opportunity to raise the interest rate in the same way as it was done in Russia. Since the economies of the eurozone countries are accustomed to cheap borrowed money, such a tightening of monetary policy would lead to a serious financial crisis, the expert believes.

"In addition, there were different causes of inflation in Russia and Europe. In our country, the rise in prices was largely caused by the weakening of the ruble, but due to the increase in the Central Bank rate and a decrease in imports, the national currency quickly strengthened, which helped stabilize the situation. In Europe, at first there was monetary inflation, since they printed a lot of money during the pandemic, and then, due to the rise in energy prices, cost inflation arose, which, in principle, cannot be brought down by raising rates, "the RT interlocutor added.

• Legion-Media
• © 1take1shot

The current state of affairs can only be completely corrected by political methods, Razuvaev said. According to him, in order to qualitatively reduce inflation, Europe should come to an agreement with Russia, lift the imposed sanctions and restore the destroyed pipelines of the Nord Stream system. However, the EU authorities are now unlikely to dare to take such a step, the analyst believes.

Credit risk

Meanwhile, the rate hike already carried out by the European Central Bank is pushing the region's economy into recession, Alexander Razuvaev believes. Against the backdrop of rising loan prices, the situation in the eurozone industry has been continuously deteriorating over the past ten months, and the index of business activity in production in April fell to its lowest level in three years. This conclusion follows from the report of S&P Global.

At the same time, rising rates traditionally lead to an increase in the cost of servicing public debt. This, in turn, is fraught with additional problems, experts warn.

According to the latest Eurostat estimates, by the beginning of 2023, the total debt of eurozone governments exceeded €12.2 trillion, equivalent to 91.6% of the region's GDP. At the same time, the highest values were recorded in Greece (171.3% of GDP), Italy (144.4%), Portugal (113.9%), Spain (113.2%), France (111.6%) and Belgium (105.1%).

"The greatest danger of rising refinancing rates is for countries with a high level of external debt in relation to their GDP. As for the economy as a whole, with the tightening of monetary policy, GDP growth rates are slowing down against the backdrop of an increase in the cost of borrowing and refinancing. At the same time, consumer demand is also declining, which leads to an even greater economic slowdown, "Vladimir Chernov, an analyst at Freedom Finance Global, explained in a commentary to RT.