Consumer prices in Russia are falling. What’s going on?
Prices in Russia are falling
For the first time in three years, prices in Russia fell over the course of a month. On September 10, Russia’s Federal State Statistics Service (Rosstat) reported that consumer prices in August were down 0.4 percent compared to July.
This was one of the strongest August results on record, noted the Telegram channel Kholodny Raschyot. Analysts at Raiffeisenbank said the decline “exceeded all expectations,” while the popular macroeconomics Telegram channel MMI described it as a “triumph” of the Central Bank’s policies. By comparison, a consensus forecast of economists surveyed by Interfax had projected August deflation at just 0.17 percent.
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How did this happen?
The main driver was the seasonal drop in fruit and vegetable prices. This year, the usual pattern was reinforced by government efforts to soften the impact of the so-called “potato crisis.” As recently as late May, potato prices were rising at three times the annual rate. But over the summer, as the Telegram channel Faridaily reported, the average price of a kilogram of potatoes fell by more than half. With Russia expecting a “record” harvest this year, another sharp spike now seems unlikely.
In August alone, potato prices dropped 30 percent. Similar declines were recorded for beets (−26 percent), cabbage and carrots (−25 percent), onions (−22.3 percent), and tomatoes (−21.3 percent).
Eggs also saw a steep price drop over the summer (−30 percent). At the end of 2023, they were one of the drivers of inflation. According to Faridaily, the decline was largely due to a surge in production. But efforts to push down prices have had a downside: wholesale prices fell so sharply that raising chickens is no longer profitable for many farmers, forcing them to cull their flocks.
Overall, excluding fruits and vegetables, food prices in August rose 0.34 percent, while non-food goods were up 0.42 percent. The services sector, however, posted a 0.62 percent decline, with lower prices for passenger transport, hotels, health resorts, and tours.
What’s ahead for prices in Russia?
Analysts surveyed by the Central Bank in late August and early September now expect year-on-year inflation to be 6.4 percent by the end of 2025, compared to the 6.8 percent they projected in July. The Central Bank’s own July forecast put inflation in the range of 6–7 percent. As of September 8, the Economic Development Ministry estimated annual inflation at 8.1 percent.
Much will depend on the Central Bank’s next steps. Economist Dmitry Polevoy noted on his Telegram channel that “actual conditions in the economy continue to deteriorate, and in this environment it’s unclear how much weight should be placed on improving [inflation] expectations.” Along with the slowdown in price growth, GDP growth is also losing steam. Experts expect the Central Bank to cut its key rate — currently at 18 percent — again at its September 12 meeting.
Meduza’s Razbor (“Explainers”) team