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Explanation: What does Russia’s “zero inflation” mean?


President Vladimir Putin said on Tuesday that Russia had been able to “get inflation under control” after data showed almost a month without inflation.

“From the second half of May, price growth came to a complete halt. Now inflation is at zero,” Putin told a government meeting.

But while flat prices may sound like good news, some analysts have suggested the numbers are actually a worrying sign.

What happened?

Russia’s statistics service (Rosstat) said on Wednesday that there had been no inflation in Russia since mid-May. For two of the past three weeks for which there is data, Rosstat said Russia actually saw mild deflation.

The turn towards deflation comes after an inflationary shock caused by Western sanctions and concerns over the availability of key goods that led to panic buying following the invasion of Ukraine. Russia’s monthly inflation hit a 20-year high of 7.61% in March.

What does this mean for the Russian economy?

Economists agree that if deflation continues, it should be seen as a sign of worse times to come. Traditionally, deflation is a sign of reduced demand in the economy – meaning a prolonged recession is likely looming.

“What Putin’s remarks actually mean is that the economy is getting worse,” analyst Nick Trickett told The Moscow Times.

“He’s just trying to sell to the public the idea that economic technocrats are going to do things that will keep the prices of basic commodities like food from rising.”

Trickett’s concerns were echoed by macro analyst Olga Belenkaya.

“Overall, steady deflation or an inflation rate below the central bank’s 4% target could be a sign of negative economic demand that could accelerate economic decline,” Belenkaya said. Told Altapress news agency on Wednesday.

What does this mean for consumers?

Deflation is not necessarily good news for Russian consumers as it could be a sign of higher levels of unemployment than official figures suggest.

“It can be positive [trend] for consumers who can still afford to buy things, but if this deflation is the result of a contraction in economic activity causing people to make less money, that doesn’t suggest anything positive,” he said. said Trickett.

What does this mean for retailers?

As incomes fall and demand continues to fall, Russian retailers and manufacturers may decide to lower prices – although that probably won’t last.

“[Retailers and manufacturers] will most likely take the decision to reduce investments, production and the number of employees. This, in turn, will lead to lower income and demand – this is how a crisis spiral is triggered,” Belenkaya said.

Russian retailers are particularly vulnerable given the logistical difficulties of delivery in the context of the ongoing war in Ukraine.

“Producers and people selling to consumers are seeing cost increases and need to consider how much of those costs they can pass on to consumers,” Trickett said.

What does the future hold?

Forecasts for the Russian economy remain pessimistic.

The Institute of International Finance (IIF) said this week that he expects more Western sanctions against Russia and long-term economic decline.

Further deflation would suggest Russia’s economy is “in a free fall on consumption,” Trickett said.

As the economic situation deteriorates, many analysts expect the Russian government to announce the removal of more and more economic data from the public domain – and to manipulate published data in an attempt to mask reality.

“I am convinced that they [the Russian government] will begin to more tightly control the data and information space for business and economic news,” Trickett said.

“It’s pretty clear to me that things are [already] much worse than they say.


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