Household inflation expectations responded to seasonal price movements

In July 2017, household inflation expectations for the year ahead rose slightly but stayed close to their historical lows, suggests the inFOM survey commissioned by the Bank of Russia. These dynamics are temporary in nature and result from both seasonal increases in prices of certain food products and planned indexation of utility rates.

At the same time, as overall inflation trends stabilised, respondents to the survey became more positive in their estimates of annual inflation. According to inFOM, these estimates fell considerably in July to reach their historical lows.

The respondents were considerably less concerned about movements in prices of meat and poultry, eggs, and medicines in July than a month earlier, as prices of these products had fallen in June.

An expected decline in fruit and vegetable prices due to this year’s harvest may also have a positive impact on household sentiment. As monetary policy is set to remain moderately tight, sustained inflation close to the 4% target level is expected to lower inflation expectations and anchor them to the target reading.

Consumer sentiment of respondents to the July survey suggested that their financial standing had stabilised and they were inclined to make large purchases. Slower inflation and overall economic recovery will help improve consumer sentiment.