Butter is not the only thing that’s locked up in Russia. Inflation rates seem to be tightly secured as well, with official numbers showing a 0.8% increase month-on-month in October, which when annualized, shoots up to approximately 10%. However, that’s just the official figure. The real rate might be around 11% if we consider the ex post rate.
The Central Bank of Russia (CBR) has projected an inflation rate of 13.4%, leading to an ex ante real rate of 7.6%. With expectations of the policy rate climbing to 23% by December, the anticipated ex ante real rates could reach 9.6% assuming constant expected inflation. The question arises – can we trust the Consumer Price Index (CPI) numbers reported by Rosstat?
Recent research by the Stockholm Institute of Transition Economics casts doubt on the accuracy of official inflation numbers. Alternative measures like the fast-moving consumer goods (FMCG) index by ROMIR suggest that households might be facing higher inflation than reported. ROMIR’s inflation measure hit over 40% annually in May 2022, nearly double the rates published by Rosstat. In June 2024, while Rosstat reported 8-10% inflation, ROMIR recorded 16%. It is evident that households might be resorting to purchasing cheaper substitute goods due to sanctions and budget constraints, which might not be reflected in the CPI.
The implication of CBR maintaining the real policy rate at 2020 levels, as shown in Figure 25 from the Stockholm Institute for Transition Economics, raises concerns about the changing natural rate (r*). The prevailing 21% policy rate combined with mismeasurements still results in a high real rate of 5-7.6%. Despite the uncertainties surrounding the data, the signs point towards persistent high real rates in Russia.
As the economic landscape in Russia continues to evolve, it is crucial to critically analyze the inflation data and consider the implications of policy decisions on real interest rates. The discrepancies in reported figures and the potential impact of changing consumer behaviors highlight the complexity of understanding and managing inflation in the current environment. Whether it’s butter or inflation numbers, the key lies in unlocking the truth to make informed decisions for a stable economic future.
