Translated material
"Suppression of Inflation"
The President formulated the key task of the government
At yesterday's meeting with Deputy Prime Minister and Finance Minister Alexei Kudrin, President Dmitry Medvedev said that suppressing inflation is the government's key task today . Judging by polls, the vast majority of Russian citizens easily agree with this. However, until now neither Prime Minister Vladimir Putin nor Medvedev himself have formulated the task in this way. And, in general, it’s clear why. It gives no pleasure to any government to state that it failed to “keep track” of prices. In addition, its representatives are always afraid of adding fuel to the fire with unnecessary comments. However, inflationary expectations in society and the economy are so obvious that there is no point in fearing this...The head of the Ministry of Finance told the president yesterday about the budget amendments prepared by the government related to increasing funding in the social and economic sphere. Mr. Medvedev hoped that “all these calculations will not in any way affect the macroeconomic indicators that are planned to be obtained by the end of the year.” In response, Mr. Kudrin said that the Ministry of Finance and the Central Bank “finally managed to bring the growth rate of the money supply in the economy” in accordance with those prescribed by the Duma and the government. Today, monetary policy parameters are “significantly better than they were at this time last year.” “I believe,” said Alexei Kudrin, “this will affect the reduction in inflation rates in the next six months.” In this connection, Dmitry Medvedev formulated: “The task of suppressing inflation is the key task of the government today.”
It’s funny if they start commenting on this in the spirit of our political science: they say that Medvedev is already setting tasks for Putin. Rising inflation is a common challenge for both of them. One can only guess how much their (and their advisers') views on how to respond to this challenge coincide.
As Oksana Sergienko, director of the long-term financial planning department of the Ministry of Finance, said yesterday, inflation for May will be 1.2 percent, and since the beginning of the year - 7.6 percent. At the end of the year, almost all economists are convinced that it may well exceed last year’s 12 percent, and the majority of the population, as usual, does not believe this “average hospital temperature.”
The problem is that both in the departments involved in the economy and in the expert community, at first there was not even a hint of unity in views on whether this inflation poses a threat, and then on what is more important: the fight against inflation or the pace of economic growth, then - on how to overcome it with minimal losses for the economy, and, finally, apparently - on how to overcome it altogether.
At the same time, the task in the literal sense of “suppressing”, in the sense of “crushing” inflation, is not worth it. Because doing this is actually easy, but living after it is difficult. The Ministry of Finance should only harshly cut budget expenditures, and the Central Bank should sharply raise the ruble exchange rate, the refinancing rate and reserve requirements for banks. A bouquet of effects: everything comes together with the prices.
So the authorities are faced with a truly non-trivial task. To take restrictive measures, even in a mild version, at a time when the economy is growing so beautifully - we have never had such experience in our practice. However, high inflation hits the most vulnerable (it is statistically proven that for them, based on their consumption structure, prices rise even faster) and that part of the population that was potentially ready to join the middle class. And even urgent social compensation will only partially help here. Pension savings, funds on deposits, capital allocated to state corporations, and the state nest egg (former stabilization fund) are quickly consumed. Credit becomes more expensive, and it becomes especially difficult, if not impossible, to invest in “long-term” projects: while the estimate is being redone and additional money is found, the project becomes even more expensive.
Almost all attention, by the way, has been focused until recently on retail prices. However, the situation with producer prices is almost worse. Over the year (April to April), industrial prices increased by 27.4 percent. - in this indicator we are among the world leaders. There is also high inflation around our borders: Ukraine, the Baltic countries, Kazakhstan (in the retail sector - 15-20 percent per annum). But, as they say, some have small pearls, and some have empty cabbage soup. China has begun a tough fight against inflation because it believes that 8 percent. per year (instead of the usual 4 percent) is already too much. And the Americans are unhappy that it has risen from 3 to 4 percent. The question is, what are we focusing on?
Another question: how long are we willing to explain our own inflation by the impact of global inflation? She, of course, makes her contribution to our economy. But even with the rise in world food prices, the most diverse examinations assigned them a share in our domestic inflation of no more than 30-40 percent. At the same time, prices for milk, butter, sugar, and grain have fallen in the world. Do we now need to ask whether prices in our stores will fall as a result?
Of course, if the growth of money in the economy approaches 50 percent. per year, lending is growing at the same rate, by 40 percent. government expenses increase, and the influx of capital from abroad breaks national records, then a rise in inflation is almost guaranteed. But if the problem were only the amount of money (or rather, the speed of its receipt)... What has been said thousands of times about the lack of competition, about barriers to entering the market, about the reluctance or inability of the state to fight monopolies - not only state ones, but also private, not only at the national level, but also in local markets - remains not only relevant, but has become a major economic disaster. And a fundamental condition favoring Russian inflation.
As is, of course, corruption. We, of course, need increased investment, infrastructure development, construction of roads, ports, etc. But if almost any such large project is recognized not only by ordinary citizens, but also by our political and economic elite as super-corrupt, if the announced amounts of required investments are often several times greater than foreign analogues, then is it necessary to further explain that such “ investments" directly affect the growth of inflation. Because they show an immoderate demand for materials, and in large part they very quickly end up directly on the consumer market.
You don’t have to talk about all this. It is clear that it is unpleasant and somewhere already boring. But in combination with the big money that the country now has, this situation can, unfortunately, lead to one thing: inflation, rising costs to the point of a complete loss of competitiveness and stagnation.