Russian economy falls into rapid stagflation

Russian economy in hyperinflationary situation

Current affairs commentary by NRI researchers

Due to the sanctions against Russia following the invasion of Ukraine, the relatively good Russian economy is rapidly deteriorating, and the living environment of the Russian people is suddenly deteriorating. During the week of Russia's invasion of Ukraine, deposits of 2.5 trillion rubles (about 2.5 trillion yen) were withdrawn from banks in Russia. On the other hand, Russian consumers are facing shortages and rising prices of everyday goods. With the decrease in imports due to sanctions and the rise in prices of imports due to the depreciation of the ruble, consumers' rush to buy is accelerating them. The rise in prices of electric appliances such as TVs, vacuum cleaners and smartphones, foods such as granulated sugar, and pharmaceuticals is conspicuous at the moment (column, "Hyperinflation in Russia. Former Soviet Union-type shortage / inflation?", 2022 March 18, 2014). Consumer prices have risen by more than 2% from the previous week for the second straight week, according to the Federal State Statistics Service. This is the pace at which prices more than double in a year, and can be said to be a hyperinflationary situation. Russian SNS shows images of supermarkets with no products on the shelves and consumers buying sugar, flour, and buckwheat flour in bulk. However, foodstuffs, especially fresh foods, may not have such a serious sense of shortage compared to electrical appliances and pharmaceuticals. That is because the ratio of imported products is relatively low. After the merger of Crimea in 2014, sanctions in European countries restricted the import of fresh food, and the Kremlin has since expanded its domestic food production. Since the decrease in imported raw materials and parts will hinder the production of domestic products, the shortage of not only imported products but also domestic products will become more serious in the future. As price increases are prominent in daily necessities, they are likely to put pressure on the lives of low- and middle-income earners.

Russian economy becomes fierce stagflation

According to a survey by Data Group's Morning Consultant, half of the low- and middle-income earners with a monthly income of 50,000 rubles (about 50,000 yen) or less said that as of March 15, the living environment had deteriorated compared to the previous year. .. The number of respondents who said that their living environment had improved minus the percentage of respondents who said they had deteriorated exceeded + 2 percentage points in the last week of February, but then plummeted to -6 percentage points in the second week of March. Approaching. The Russian economy will deteriorate rapidly in the future. "Trade and financial restrictions on Russia have made production and logistics difficult in many industries," Russia's GDP said in a statement at a policy-making meeting on the 18th. It will shrink over the next few quarters. " In addition, even as hyperinflation continues, the policy interest rate, which was raised from 9.5% to 20% in February to defend the currency, has been left unchanged this time. This is because consideration was given to the adverse effects on the economy. President Putin also announced on the 16th that he would raise pension benefits and salaries for civil servants. There may be some strong caution that the deterioration of people's lives due to high prices will lead to criticism of the government. The Institute of International Finance (IIF) has indicated that Russia's real GDP growth rate in 2022 will be -15%. The previous outlook was + 3%. Russia's growth outlook for the International Monetary Fund (IMF) as of January was also expected to grow steadily at + 2.8%. In major countries, concerns about stagflation, which is a combination of rising prices and economic downturn, are smoldering, but the Russian economy can avoid falling into a particularly sharp stagflation, where hyperinflation and a rapid contraction of the economy coexist. There is no situation. (Reference) “Panic buying and steep price rises empty Russian shelves and wallets”, Financial Times, March 18, 2022 Takahide Kiuchi (Executive Economist, Nomura Research Institute) --- This article is from [Kiuchi] on the NRI website. It was published in Toei's Global Economy & Policy Insight] (https://www.nri.com/jp/knowledge/blog).

Takahide Kiuchi