Inflation: The Technical Side
Translated from Russian with the help of AI. Original: Russian version
A technical breakdown of the inflation structure at the end of February and of which goods and services have room for price declines or are likely to see further increases.
Today let's look at inflation from a technical angle. I will analyze the figures as of the end of February.
Annual inflation stood at 21.3%, which seems very high. However, it should be understood that monthly inflation in February was 1.3%, higher than in January (1.1%). If inflation ran at 1.3% every month, the annualized figure would be 16.8%, which roughly corresponds to the current base rate.
The largest contribution to annual inflation comes from March and April 2022, when monthly inflation was 3.7% and 2% respectively. That is highly anomalous for March, and in my opinion the Ukraine factor could not have had such a rapid impact, considering that in March 2022 the ruble weakened sharply and inflation could not have been imported from Russia. Perhaps the calculation methodology changed or adjustments were made; it is not entirely clear. Nevertheless, this means that if monthly inflation holds at 1.2%, annual inflation will already be around 17.5% by the end of April.
Broadly, inflation consists of food inflation, non-food inflation and services inflation. Food accounts for the largest share. At the end of February, food prices were up 26.2% year on year, and food's contribution to overall inflation was 10.9%. It is interesting to look at what rose least, since that is a potential source of price growth this year. Meat rose the least, by just 16.7%. It seems to me that meat is the easiest item for the akims (regional governors) to control manually, hence these figures.
Non-food inflation was 20.5%, which is also high, although slightly below overall inflation. Gasoline, meanwhile, rose by 0%, as its price is controlled by the state; without gasoline the picture would be considerably worse, as detergents rose by 54% and personal goods by 40.5%.
It is logical that overall inflation is traditionally held down by paid services, where natural monopolies account for a very large share. Overall inflation in paid services was 15%, and this fairly low figure was achieved thanks to increases of only 0.6% for piped gas, 2% for liquefied gas, 3.5% for cold water, 7.2% for hot water and 9.1% for heating. These are all potential points of growth this year, as the recent accidents show that holding down inflation through natural monopolies is no longer safe.
Nevertheless, a number of goods whose prices rose very sharply over the year have, conversely, room to fall, since businesses have now adapted, the exchange rate is stable, and the open market should iron out anomalies through competition. The state should help here as well. In my layman's view, bread, sugar, detergents, personal goods and housing rents have potential for price declines, which is a positive factor.