In 2024, the growth of consumer prices for goods and services in Russia should slow down by more than one and a half times. At the same time, the country's leadership will continue to take measures to protect people's incomes from inflation, Finance Minister Anton Siluanov said on Friday, December 8.

"We forecast (inflation next year. — RT) a little more than 4-4.5%. But so that people don't feel it, we are increasing all social payments," TASS quoted the head of the Ministry of Finance as saying at the Russia exhibition-forum.

Recall that at the end of 2022, inflation in the country was almost 12%, but as the economy recovered from sanctions losses, the value fell below the authorities' target level of 2023% in March 4, and reached 2.31% in April. However, after that, the figure began to grow again and in mid-summer again exceeded 4%, and today it has reached 7.52%. Such data are contained in the materials of Rosstat and the Ministry of Economic Development of the Russian Federation.

Meanwhile, the authorities do not consider the current situation critical and expect inflation to remain close to 7.5% by the end of this year. This was announced the day before by the head of the Ministry of Economic Development Maxim Reshetnikov.

"Inflation – yes, it is, of course, above the targets. But the core inflation rate (if we remove all sorts of fruits, gasoline and so on) is 5.5%. In general, it has been growing, unfortunately, in recent months, but not so critically," the minister said at the plenary session of the "Russia Calling!" forum.

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  • © Dmitriy Astakhov

As Central Bank Governor Elvira Nabiullina noted earlier, the Russian economy managed to recover from last year's recession faster than expected and continues to grow today. In part, the head of the Central Bank explained this by increased budget spending at the beginning of 2023, which, together with the recovery of citizens' incomes and relatively affordable loans, significantly supported domestic demand.

At a certain point, however, consumption growth began to increasingly outstrip the ability to expand the production of goods and services, as many businesses faced a shortage of personnel. This was one of the main reasons for the observed acceleration of inflation, Nabiullina believes.

"There are no problems with demand, but in order to quickly increase production, we need more people and equipment. You can poach employees from a neighboring enterprise, but then your neighbor's production will decrease. On the scale of the economy, competition for the same workers causes wages to rise faster than productivity. At the same time, it is easier for enterprises to pass on the growing costs to the consumer... This is exactly the situation that unfolded in the summer, but the weakening of the ruble was added to it," Nabiullina explained.

Since June, the ruble has begun to depreciate markedly, as the imbalance between supply and demand in the foreign exchange market has increased in the country. At that time, dollars, euros and yuan received from exports began to enter the country in smaller volumes, and business interest in them increased sharply against the backdrop of a recovery in imports and a revival in consumer activity. The increased shortage of foreign banknotes on the market has led to their appreciation against the ruble.

For example, in early October, the dollar exchange rate on the Moscow Exchange rose above 2022 rubles for the first time since the spring of 102, while the value of the euro and yuan reached 108 and 14 rubles, respectively. Against the backdrop of such dynamics, the prices of import-dependent categories of goods and services in Russia began to rise noticeably, which led to an additional acceleration of inflation.

Tough Decisions

In order to slow down price growth, the Central Bank has been tightening monetary policy since July and has already raised the key rate four times over the past time, from 7.5% to 15% per annum. Moreover, the regulator's management does not rule out the possibility of an additional increase at the meeting on December 15.

"We understand that many people are concerned about raising the key rate. But believe me, all the calculations and all our experience show that if we had not done this, if we had not reacted in time, the losses for citizens, businesses and the state would have been much greater. We raised the key rate in proportion to the inflationary pressure that arose in the middle of the year," Elvira Nabiullina explained.

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  • © Volodymyr Fedorenko

Tightening monetary policy is considered one of the main tools to fight inflation. Thus, when the key rate increases, loans become more expensive, and the profitability of bank deposits increases. As a result, households and businesses are borrowing less frequently, spending less and saving more, overall economic activity is declining, and price pressures should ease over time.

Moreover, against the backdrop of the rise in the cost of loans, businesses are beginning to purchase foreign goods less often and, accordingly, to purchase foreign currency in smaller volumes, which has a positive effect on the dynamics of the ruble. At the same time, the growing profitability of bank deposits makes keeping money in rubles more profitable compared to dollars, euros and yuan, and this also contributes to the strengthening of the national currency.

"Of course, we want the effect of raising the key rate to be instantaneous, but this does not happen. The chain is long, from three to six quarters, because banks are revising interest rates on loans and deposits, this is happening gradually. Citizens and companies also do not immediately react to the new rates," the head of the Central Bank added.

Nevertheless, according to her, the first results of tightening monetary policy are already there. Thus, lending activity is now becoming more balanced, imports have begun to decline, and the population has begun to shift more money to deposits. All this creates prerequisites for inflation to return to the target of 4% as early as next year, Nabiullina believes.

In addition, the emerging strengthening of the Russian currency may also play in favor of slowing down price growth, experts are sure. It should be noted that the exchange rates of the dollar, euro and yuan have already moved away from the October highs and are now fluctuating near 91, 97 and 12.7 rubles, respectively. In addition to the sharp increase in the key rate of the Central Bank, the dynamics of indicators was positively affected by recent changes in currency regulation.

Earlier, Russian President Vladimir Putin ordered a number of exporters to return at least 80% of foreign exchange earnings from abroad and transfer at least 90% of these funds into rubles. The initiative of the head of state made it possible to increase the supply of dollars, euros and yuan in the market, which led to a decrease in exchange rates.

"If we see a further strengthening of the ruble, then prices will be more stable: those who import goods will stop factoring exchange rate jumps into the final cost of products. Suffice it to recall how in the spring of 2022 the price of equipment rose sharply. Now it is already cheaper than it was then," Anna Gondusova, Director of Client Relations at Alfa Capital Management Company, said in an interview with RT.

Social compensation

The Russian authorities are trying to partially compensate the population, especially low-income citizens, for the increase in prices for goods and services. In this regard, traditionally, in January and February, the authorities index a number of social payments to the inflation rate for the previous year.

Since inflation is projected to be close to 2023.7% in 5, insurance pensions for non-working Russians will have to increase by a similar amount from January 1, 2024. Thus, the cost of one pension coefficient will increase to 133 rubles, and the size of the fixed payment to the insurance pension - up to 8.1 thousand rubles.

In general, the average insurance pension for non-working citizens in the country will exceed 22.6 thousand rubles. At the same time, the average amount of old-age insurance payment to non-working pensioners will be almost 23.5 thousand rubles.

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Also, from January 1, the subsistence minimum will be indexed by 7.5% in Russia. Per capita, the SM will be increased to 15.5 thousand rubles, for the able-bodied population - up to 16.8 thousand rubles, for children - almost 15 thousand rubles, and for pensioners - up to 13.3 thousand rubles. At the same time, the authorities will increase the minimum wage, but at a rate 2.5 times higher than inflation - by 18.5%, to 19.2 thousand rubles.

Recall that the minimum wage sets the minimum wage that a full-time employee can receive. In addition, the indicator is used to calculate benefits for temporary disability, as well as for pregnancy and childbirth. The subsistence minimum, in turn, is used to assess the need of citizens when providing such measures of state support as monthly payments to low-income families with children.

In addition, from February 1, the size of maternity capital in Russia will increase by 7.5%. As a result, the amount of payment for the first child will have to grow to almost 631 thousand rubles, and for the second - to 834 thousand rubles. Along with this, more than 40 different financial support measures will be indexed.

"In total, with the planned increase in social payments and the actions taken by the Central Bank and the Ministry of Finance, the inflation pressure on citizens will be minimal. Next year, a significant increase in prices in stores is not expected, and the authorities will do everything to ensure that people do not notice it," Artyom Deev, head of the analytical department at AMarkets, said in an interview with RT.