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The Bank of Russia said that inflation in the country began to decline: its peak reached in March, with the price growth was lower than assumed in the Central Bank. Why is this news should not only please, but upset?
Not so terrible VAT, how to be feared
By the end of April, annual inflation was 5.2%, down from the March of 5.25%. These figures were below forecasts. "Annual inflation has passed the peak value at a lower than expected level under the increasing effect of the provisional restraining the growth of prices of factors: the strengthening of the ruble and reduction of prices on diesel fuel. The impact of VAT on consumer prices ceased to be traced in the statistics," — said the authors of the newsletter "what do the trends" issued by the Bank of Russia.
But last September, the Bank of Russia raised its forecast for inflation for 2019 to 5-5,5% from previous 4% (March forecast was reduced to 4,7—5,2%), warning that "possible short-term surge in inflation to double digits". Causes — the weakening of the ruble and a rise in VAT. For example, fluctuations of the ruble — the external factor, but why the VAT increase has not had such a strong impact as intended? And that generally is for a lower than expected price increases?
"As can be seen from the data of Rosstat, the inflation slowdown occurred in April, mainly due to the non-food goods and services (by 4.7% year-on-year, compared with 4.9% in March), whereas the growth of prices for food products for three consecutive months is at a level of 5.9% year-on-year, says analyst company General Invest Tatiana Simonova. — Among the components that influenced a reduction in the growth rate, note meat, gasoline, oil, eggs, sugar, while fruits and vegetables, on the contrary, rose sharply". How it was affected by the increase of VAT from 18% to 20%?
"the VAT Increase could have a significant impact on the inflation and the supply side in this was to play a major role, says Finance Professor the new economic school, academic Director of the research Center of financial technologies and digital economy "SKOLKOVO"-NES Oleg Shibanov. — But in fact it turned out that the company did not raise prices as vigorously as expected." Why?
"there is No doubt that low inflation is the result of low demand, that is, negligible economic growth, — said head of analysis and strategic marketing PSB Nicholas Kashcheev. In all the world where prices are determined more or less by the market, it is." "There is no doubt that the low demand and generally low growth of the economy has sounded the inflation in 2017 and 2018 and presses down on her now," — said the chief economist of rating Agency "Expert RA" Anton tabah.
this is a compressed demand from the population has limited the impact of the VAT rate increase on inflation, I am sure the chief analyst "BCS Premier" Anton Pokatovich. Companies simply do not dare much to raise prices in low demand.
Why, among other reasons, put the brakes on inflation, the Bank of Russia does not call the low demand? "Low demand suggests that the economy is not in the best condition, which is probably why the Central Bank decided this factor not to mention," answers the main Global Markets economist BCS Vladimir Tikhomirov. However, all is not so simple.
the Regulator understands the action which renders the consumer demand on inflation, but does not specify it in the list of deflationary factors, because it is difficult to give this effect a quantitative assessment, explains Pokatovich. The reduction in demand is an indirect factor in inflation, the Central Bank in the list of reasons indicated only direct factors, agrees General Director of IFC "Timer" Roman Makarov. However, indirect factors give a fairly clear picture.
first, the dynamics of consumer demand can be evaluated including using Rosstat data on retail trade. For example, the volume of retail sales. "Retail trade growth in real terms in the first quarter of this year slowed down considerably: a plus of 1.8% compared to the corresponding period of last year, — says Roman Makarov. For comparison: in the first quarter of last year was a plus of 2.7%". You can compare the growth of average check level of inflation. "The largest grocery retailers in the reports for the first quarter indicated a growth in the average ticket of 1.2% to 4.2% in annual terms, however, the consumer price index for food products rose during this time by almost 6%, which suggests that citizens save on food," continued Makarov.
the Decline in demand not only leads consumers to spend less, but retailers and manufacturers to reduce margins to maintain demand. "In the end, we see not only a slowing of price increases, but also the reduction of the financial results in trade and production: it is the latter in many respects is a quantitative reflection of the low demand," notes Vladimir Tikhomirov. Actually, here is the answer to the question why the sellers have raised the prices not as dramatically as feared by economists. They just see that people have no money.
"According to Rosstat, the income in the first quarter of 2019 fell 2.3%," says analyst Tatiana Simonova. "Most likely, if the population had more free cash and not reduced consumption, the level of inflation at the end of the first quarter would be 5.3%, and in the area of 5.6—5.7 percent," — said Roman Makarov.
the Life of a loan
However, the Central Bank there is a more obvious reason not to specify the reduction in demand as a deflationary factor. The growth rate of retail sales, although declining, but remain positive. "Retail sales in the first quarter of 2019 still grew by 1.8% compared with the corresponding figure of 2018, — recalls the Director of the Institute of strategic analysis FBK Igor Nikolaev. — However, it is important to consider the quality of such consumer demand. Falling real disposable monetary incomes of the population it supported the fact that people spent their savings, borrowed money for current consumption. Therefore, the recognition of the Central Bank problems with consumer demand would be still more than a reminder that the real incomes of the population in fact continuously falling since 2014".
the Survey "Levada-center" conducted in April of this year, showed that in 2018, the Russians sent to savings of 3.7% of cash income is the lowest in the last 20 years, since 1998. Meanwhile, 65% of Russian families do not have any savings. Why falling incomes and savings retail trade still up? Because I grew up another important indicator is the consumer credit.
"From April 2018 to April 2019, the total size of the debt burden of individuals has increased by about 12%," leads the data analyst investment financial company "solid" Vadim Kravchuk. Accordingly, it is possible to assume that this credit growth and helped to increase trade. "Surveys confirm this "old" held specifically for Bank of Russia: if in December 2018, only 3% of respondents indicate that they bought in the last month of the goods in the loan in April 2019 for 9%," — said Roman Makarov.
the Decline in consumer activity that occurs on the background of rising credit — a bad signal. "The loan funds are used by the population to stimulate their demand, and to maintain it in relatively comfortable level, necessary for normal life", — said Anton Pokatovich.
the growth of the portfolio of large banks remains at above 20% year-on-year, quoted Oleg Shibanov. "High credit growth can be explained by the increase in the share of loans that went into current consumption, i.e. to maintain previous standard of living, says Exante managing partner Alexey Kirienko. — An important component in the increased cost of servicing previously obtained loans. That is why such a high rate of credit growth is not spurred inflation".
and the nature of spending is not encouraging. "Polls consistently indicate that the majority are very cautious and even pessimistic about both the promise and the present situation continues Kiriyenko. People are using the crisis model of behavior that does not allow inflation to gain momentum."
But how many will survive this situation? "Consumer lending allows you to support demand, not allowing him to decline, but only as long as the borrowers are able to service the debt, and it becomes problematic in conditions when wages and incomes are not growing," says Vladimir Tikhomirov.
There is another negative aspect of inflation, the level of which was below expectations. Spends little not only people, but also the state. "Low inflation is entirely consistent with a negligible rate of economic growth, which now does not accelerate even with the rise in oil prices, says Nicholas Kashcheev.
— If it is called "getting rid of oil dependency", such recognition looks, to put it mildly, controversial. The fact is that, judging by what we see, even a fairly large list of notorious national projects is downright Keynesian substitute a normal investment process in the context of the de facto extinction of the last — no evidence that the state chose active catalytic role. Economic growth in the country for some reason quite purposefully put in the position on hold, is supported by only a minimal pace, as if in an emergency the life support system. Instead of growing priority to the accumulation of reserves".
a Little more than have
In the Bank of Russia noted that the trend in April, the slowing of inflation will allow to achieve the target of 4%. "In the coming months with an expected gradual slowdown of inflation with a yield of 4% in the first quarter of 2020", — stated in the Bulletin of the Central Bank. How critical to the Russian economy to reach this level? Yes, the current inflation rate was below economists ' forecasts and the regulator, but how "healthy" our economy itself, the current level of 5.2%? The views of economists vary.
"Probably, the stability of inflation does indicate that the economy is close to potential growth on average 1.5%, — says Oleg Shibanov. — The current five percent are already quite intelligent, and, Yes, rather than hinder the economy than create problems."
the prices still a little higher than normal, says Tatiana Simonova. "In economic theory, it is believed that a healthy level of inflation for emerging markets is 3-4%, and for developed — about 2%, — says the expert. — Thus, the current inflation exceeds the target level, but is absolutely critical". The current level of inflation is acceptable, but at the moment, underlines Igor Nikolaev. "Let's not forget that this level is twice the rate of inflation 2017 (2.5 percent), more it and on indicators of inflation for 2018 (4,3%)" — reminds Nikolaev.
"the Level of inflation at 5.2% for our housekeeper looks high, does not agree with the previous experts QBF senior analyst Oleg Bogdanov. — Given global trends the General decline of inflation associated with a greater degree of significant demographic and technological changes, we can say that average inflation in developed countries is around 1-2%, and in emerging economies tends to 3%". What is the current level of inflation is stimulating, acknowledges and Vadim Kravchuk. "It is very important to reduce the annual pace of price growth to at least 3.5—4 per cent," he says. But whether the Central Bank to reach this level?
VAT also remind myself
"preinflation Short-term risks have declined. In the coming months with an expected gradual slowdown in inflation reaching 4% in the first quarter of 2020, — the Bulletin of the Central Bank. — In the medium term proinflationary risks still outweigh the disinflationary". What exactly will push prices up or push them down?
"the Main deflationary factor is, of course, weak consumer demand", — says Roman Makarov. "The scale of the deflationary pressures that are generated from stagnant wage growth amid subdued consumer demand in General, it may be sufficient to largely offset the acceleration of price growth in case of weakening of the ruble", — stated Anton Pokatovich.
by the Way, have a negative impact on consumer demand may slowdown in lending, which may occur due to the increase of provisions for consumer credits, the Central Bank has long worried about the risks if the growth of consumer loans.
Among deflationary factors experts say the changes in world oil prices, reducing the risk of sanctions and in General for improved foreign market conditions, as well as further strengthening of the ruble. Internal also should include the expected good harvest, says Alexey Kirienko. Will constrain the prices are also modest at present rates of expenditure in the framework of national projects, adds Oleg Shibanov.
turn to proinflationary factors the Central Bank considers "the geopolitical factors, bursts of volatility in financial markets, the upward effect on prices, accelerating consumer credit growth, the secondary effects associated with the increase in inflationary expectations of business and population, the growth of skills shortages in the labour market". But the list is not exhaustive.
"Among inflationary factors should be called the VAT increase, — says Tatiana Simonova. — Despite the fact that the effect of growth is not too much to affect inflation in July will increase in utility tariffs, which reflected the effect of increased VAT rates that can provide a surge of growth in the consumer price index".
Rates and tax rates, which are set by state-owned companies and government, is one of the key factors influencing inflation, according to Vadim Kravchuk. Beyond that, monetary policy of Bank of Russia and the ruble. The reduction of the key rate and the weakening of the ruble will accelerate inflation. And the weakening of the ruble is highly likely after the sharp start of the year, suggests Alexei Kirienko.
in addition, the harvest of this year risks to be very expensive, warns the Roman Makarov. "As we can see from the statistics, this winter has risen in price fruit-and-vegetable products, — says the expert. And this is connected not so much with the VAT increase, how much, firstly, with the poor harvest last year, and secondly, with sharp jumps in fuel prices last year, therefore, apart from the lack of supply in this production laid down and higher costs. Accordingly, this year will be high and the cost of sowing. And that means that the harvest this year is likely to be quite expensive".
the probability and lower oil prices are above $ 70 per barrel, which is very high in the current situation of global economic slowdown is increasing due to trade wars. While prices hold due to production cuts by OPEC+ and the situation around Iran and Venezuela, but if the slowdown continues, they will be under pressure. This, in turn, will cause a depreciation of the ruble and rising prices, especially for industrial goods.
in addition, the weakening of the ruble, possibly due to the outflow of capital caused by potential sanctions. "And if the price of oil could still be supported by geopolitics, sanctions, the situation is much worse — they will grow", — said Igor Nikolaev.
"At the moment, the CBR can only assume that inflation will return to 4% at the beginning of next year, but not to guarantee it, — says Vadim Kravchuk. — Many of the risks that can prevent it, closeprogram, for example, the situation on the world financial and commodity markets and the geopolitical situation. Recall that in 2018 a significant impact on the economy and financial system Russia has had sanctions by the United States."
But if in the near future to determine inflation are external factors, it is possible that the Bank of Russia should focus its efforts on other goals? Periodically, the Bank of Russia has been criticized for the fact that he changes it and keeps inflation at a very high rate in comparison with the inflation level. And that ought to stop making a fetish of inflation and lower rates to revive the economy. Is it real?
"we should Not exaggerate the capabilities of the Central Bank to influence economic growth by changing the key rate, — says Igor Nikolaev. — This tool is well suited to control inflation, but the impact on economic growth in Russia it is still weak. Our economy is still insufficient developed to manage its development primarily monetary methods. So, the Central Bank targets inflation, well, right."
"If we abandon inflation targeting, it is necessary to choose another target, — said Roman Makarov. — Previously popular targets of Central banks exchange rate was and reduce unemployment. Until 2014 the Bank of Russia pursued a policy of targeting the exchange rate through retention of the currency corridor, but in the current conditions of existence under sanctions for its implementation can lead to a severe recession. As for unemployment, the Central Bank has no instruments of its direct control, accordingly, the actions in this direction is very inefficient, so this practice in a world long abandoned".
"traditionally, Central Banks choose to target the macroeconomic indicator, which they can directly influence, says a leading analyst QBF Oleg Bogdanov. — Influence they can primarily on inflation, which depends on the amount of money supply, interest rates and velocity of money, it's all there in the Toolkit of any Central Bank".
Stable inflation is important for the economy because it allows entrepreneurs to plan their business activities and also promotes investment, emphasizes the analyst UK "alpha-Capital" Daria Zhelannova.
"In the short term, inflation targeting, indeed, reinforces downward pressure on the economy, but in the medium to long term without controlling inflation and low interest rates on long-term loans to ensure the sustainable growth of the economy is impossible, — says Vladimir Tikhomirov. — Besides, in conditions of low demand and accelerated reduction of interest rates, the Central Bank can lead not to growth but to the growth of speculative operations in the financial market and eventually to destabilize the finsistemy — no growth acceleration".
the Central Bank is not responsible for the growth
of Course, it is impossible to talk about inflation in isolation from economic growth, but it remains very weak. "But this figure is not due to the actions of the Central Bank, and not the Central Bank to fix anything," says Alexey Kirienko. "All aspects of growth lie on the shoulders of the government and Executive power — that the taxes and national projects and state programs, and so forth," — indicates Oleg Bogdanov.
"in Almost all countries of the world the main mandate of the Central Bank is inflation plus financial stability, not growth, and even the fed is responsible for "full employment", that is, unemployment at the proper level of 4-6%, and not for economic growth," — says Oleg Shibanov.
the Maintenance and promotion of economic growth is the task of the government, almost unanimously, the experts said. Only now do the government with this task? "The problems of economy system, and they are associated primarily with the distrust of investors to the Russian legal system", — concludes Alexey Kirienko.
Milena BAKHVALOVA, Banki.ru
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