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Tuesday, December 6, 2016

Bloomberg: Bank of Russia will not be able to keep inflation due to the growing inequality


Russia’s Central Bank fears that can’t control inflation due to falling turnover retail, growing material inequalities and the disappearance of the middle class. About it reports Bloomberg with reference to data of the Central Bank, which should be published later on Wednesday, October 19.


photo: Gennady Cherkasov

The fall in retail sales in Russia, according to the Agency, continues a record 21 months. While real disposable incomes fall by 7% annually. In addition, according to Sberbank CIB, some 14 million Russians over the past two years has ceased to enter into so-called middle class.

“The decline of the middle class – this is very bad for controlling inflation because it increases the risks associated with fiscal policy”, – explained the analyst of “Renaissance Capital” Oleg Kuzmin, adding that “demand will be very sensitive to fiscal decisions.

As suggested by the Central Bank, deepening social inequality reduces the price elasticity in the demand and complicates the task of controlling inflation. Less wealthy families, as a rule, not having savings and access to credit, primarily spend money on necessities and hard to react to changes in interest rates, notes the regulator.

Families with more income, on the contrary, indifferent to the changes because they spend too small a share of their income on superior goods. At the same time, families with an average income most sensitive to changes in interest rates and consumer prices, which in turn encourages producers to adapt to changes in their demand, according to the data of the Central Bank.

Head of the Central Bank Elvira Nabiullina said earlier that calls to the controller to stop inflation at its current level (6-7%) premature because it is still a “very high”.

“You know, 6-7% was more or less normal inflation, when economic growth was based on ever-increasing oil prices,” she said, speaking at the forum “Russia calling!”. According to her, investment inflation rate is 4% and below.

Read the story: Medvedev saw the bottom of the Russian crisis

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