Officials say prices in Russia rose by only 6.5% over the year. Have they bought carrots recently?

Why is official inflation different from our personal one?

In June 2021, annual inflation in Russia was 6.5% - prices have increased so much compared to June 2020. After this, inflation stopped growing and remained the same for the first two weeks of July. At the same time, the Central Bank (CB) wants inflation to be no more than 4% for 2021 as a whole - and this goal remains unchanged.

But the officials themselves admit that as consumers they feel the rise in prices in a completely different way. “I, like everyone else, go to stores and for myself, as a person, I see a price increase of no less than 10%,” Alexander Morozov, director of the Central Bank’s research and forecasting department, recently admitted at a financial congress , discussing the problem of inflation.

Even President Vladimir Putin is worried about the rise in price of products from the so-called “borscht set” .

Strongly. Since the beginning of the year , carrots have already risen in price by 151.89%, potatoes - by 80.42%, cabbage - by 88.69%, chicken - by 15.19%. The price of building materials has risen very noticeably - by more than 50%: wood panels and boards, metal tiles. Prices for gasoline and many other goods continue to rise.

The problem is that when assessing the authorities, they take into account the prices of many goods that may not be of interest to a significant part of citizens at all.

There are currently 556 goods and services in Russia’s consumer basket ; to calculate inflation, all of them are assigned a certain weight. Rosstat collects information on prices from 282 cities, for more than 82 thousand retail outlets.

But for each individual person, no more than a third of these goods and services from the consumer basket are relevant, so personal inflation always differs from the official one.

“The personal feeling of inflation is based on the fact that we, first of all, focus on the rise in prices of goods, not paying attention to stagnant and even declining prices,” explained Rosstat Chairman Pavel Malkov at the already mentioned financial congress.

This could make the picture more adequate, but, unfortunately, changes in consumer habits in the basket are not quickly taken into account. Only in 2020, Rosstat removed push-button phones, fur hats and carpets from the consumer basket, but added online cinemas, car sharing and medical masks. All this time, the Russian’s basket also includes tourist trips to Turkey, Greece, the UAE, Spain and Thailand, excursions to France, Germany, Finland and European cities.

It is important to remember that the consumer basket includes a variety of things. For example, diapers and toys, metal tiles and car tires, coal and firewood - or, for example, the cost of making a coffin. Changes in prices for these goods will not affect the lives of many people, but for some they are important. Therefore, the basket has to be changed carefully, and an index that would ideally reflect the perception of the situation by all groups of the population will still not work.

According to Rosstat Chairman Pavel Malkov, the consumer price index calculated in Russia should reflect not the consumption of an individual, but price processes in the economy, and it copes with this task. Calculations of the Russian index, according to Malkov, comply with international standards and are “regularly assessed by the IMF.”

The problem is that these calculations are actually suitable for assessing the situation as a whole and are not very suitable for talking about changes in the well-being of specific people.

Yes. On the “Financial Culture” website, made by employees of the Central Bank, there is a fairly convenient personal inflation calculator , taking into account the specifics of the regions. For example, the “okroshka index” was calculated there: for Moscow in April this index was 6% - this is how much Moscow okroshka has risen in price over the year.

Chairman of Rosstat Malkov also advises collecting receipts or keeping a table based on your consumer basket - and tracking prices for the desired items on the Rosstat website.

This is a global trend. Food in Russia, as well as throughout the world, has been rising in price faster than other goods since 2020 .

In February 2021, Bloomberg wrote that global food prices had reached a six-year high due to the pandemic, subsequent growth in demand from China and the collapse in the container shipping market in 2020 (also due to the pandemic).

World prices are monitored by the UN Food and Agriculture Organization (FAO). It monthly calculates the price index for a basket of food products, which includes grain, meat, milk, vegetable oil, cereals, coffee and other foodstuffs. The FAO index has been growing continuously since May 2020, only in June 2021 did it drop slightly, butprices are still 34% higher than a year ago.

As a result, consumer prices are growing very quickly in the United States: the annual rate there rose to its highest level since July 2008 and amounted to 5.39%. The consumer price index in the UK is growing ahead of forecasts: in June it amounted to 2.5% a year - due to food, fuel and clothing.

We don't want to. For Russians, rising food prices are a more sensitive factor than, for example, for Europeans. Most families in Russia spend more than 40% of the family budget on food, writes University of Chicago professor Konstantin Sonin - which means that for them personal inflation is much higher than the figures cited by the Central Bank.

The assessment of inflation based on people’s feelings (it is called “observed inflation”) is monitored by the Central Bank. The Central Bank's June report said that people felt last year's inflation of 3.5% was 9.6%. In the latest July survey, this figure is even worse: people now estimate annual inflation at 16.5%. Almost the entire top ten goods that have risen very much in price (according to people) over the past month are occupied by food, medicine and housing and communal services.

Apparently yes. The current 6.5% is not the peak of inflation, the Central Bank admits in its trends bulletin (July 14, 2021): “​​It is likely that its peak value has not yet been reached, given the inertia of inflationary processes and the significant delay in their response to the process of normalizing monetary policy.”

Yes.

To bring down the rate of inflation, the Central Bank on July 23 raised the key rate by 100 basis points (or one percentage point), that is, from 5.5% to 6.5%. This is the maximum increase in the key rate, and the Central Bank is using it precisely to fight inflation - for the first time since 2014.

The key rate directly affects inflation: the higher the rate, the more expensive loans become and the more profitable are deposits (that is, storing money in banks). As a result, consumption slows, demand for goods falls, and price growth slows down.

“With its decision to raise the key rate by a full percentage point, the Bank of Russia is sending a strong signal that it takes inflation risks very seriously and will not skimp in the fight against them,” says NES professor Konstantin Egorov.

But, again, it is important to remember that this applies to prices in general, and not to specific groups of goods, including the most important ones. In addition, Egorov warns: rising rates “inevitably increases the cost of borrowing not only for private businesses, but also for the Russian government. This limits its ability to issue government bonds, which, in turn, can lead to either a reduction in government spending or an increase in the tax burden.”

Tatyana Lysova