Today, we have kept our key rate at the level of 4.25% per annum.
As regards our view of the economic situation, there have been no significant changes since October’s meeting of the Board of Directors. However, inflation is driven by diverse factors. The Board of Directors now does not consider that the ratio of proinflationary and disinflationary factors and risks is clearly shifted towards disinflationary ones, as has been estimated earlier.
I would like to dwell on the aspects we were taking into account when making our decision today.
Firstly, current annual inflation notably exceeds the path assumed in our October’s forecast. Inflation is expected to be in the range of 4.6–4.9% as of the end of 2020. Price growth has accelerated due to a number of factors, including the situation in individual food markets. Prices have become more volatile in these markets primarily because of the rise in global food prices and the weaker ruble.
Exchange rate movements are also affecting non-food prices. According to our estimates, prices are driven by the pass-through of not only the ruble’s weakening in autumn, but also its changes since spring 2020. In spring, manufacturers and retailers could defer the pass-through of the weaker ruble to prices amid subdued demand and inventories accumulated earlier at previous input prices. Moreover, costs are pushing inflation upwards for other reasons as well, namely a shortage of manpower in certain industries, expenses to ensure compliance with additional sanitary and epidemiological rules, and possible disruptions in supplies due to the aggravation of the pandemic situation.
Of course, the acceleration of current inflation itself should not significantly impact our monetary policy, but there are signs suggesting that proinflationary trends may become longer-lasting. This is evidenced by a material rise in households’ and businesses’ inflation expectations.
Increased inflation expectations may induce secondary effects. This is another factor which we took into account.
There are signs that secondary effects have already started to manifest themselves. What are the reasons behind them? A considerable rise in prices for individual frequently purchased products, even when it is driven by one-off factors, makes people expect an increase in prices for a broader range of goods and services. This in turn explains the readiness to pay more and pushes prices upwards. Actually, we are already observing such an environment, which once again proves that households’ inflation expectations are currently not anchored yet.
When I say that they are not anchored, I do not imply the level of households’ inflation expectations, but rather their response to one-off factors. The fact that households’ inflation expectations are significantly higher than current inflation is typical not only of Russia, but of a whole range of countries (even where inflation is very low). In terms of monetary policy, this is the sensitivity of inflation expectations to temporary or local factors which induces risks, rather than the fact that households’ inflation expectations exceed inflation measures.
This is clear from the analysis of the reasons causing inflation deviation away from our October’s forecast. This deviation is quite notable – +0.7 percentage points. According to preliminary estimates, 0.2 percentage points of this deviation stem from a faster rise in sugar and sunflower oil prices and 0.3 percentage points – from the growth of grain export prices and their pass-through to prices for both bakery products and a broader range of food products. The remaining 0.2 percentage points are interpreted as additional steady inflationary pressure. It may result from both a faster revival of demand in a number of industries already facing supply-side constraints and secondary effects brought about by increased inflation expectations. This is what may impact a steady level of inflationary pressure in the future as well.
Therefore, today it is rather important how the situation will be unfolding in the future, including how inflation expectations will be changing and whether secondary effects may become more intense. This may result in a longer-lasting influence of one-off factors…