Inflation returns to target

Growth in prices for the CPI components which are the least sensitive to the impact of temporary factors sustains at the level consistent with the Bank of Russia’s inflation target. This will help inflation slow down to 4% as the Bank of Russia switches to neutral monetary policy. These are findings by the authors of the latest issue of the Talking Trends, the Bank of Russia’s Research and Forecasting Department bulletin.

The temporary factors, mainly including exchange rate changes, the stabilisation of motor fuel prices and early harvest, show that disinflationary risks prevail over a short-term horizon. However, medium-term risks of inflation deviating upwards from the 4% target remain dominant. They stem from geopolitical factors and financial market volatility, as well as uncertainty over fiscal policy, elevated and unanchored inflation expectations and labour market developments.

The Russian economy grew slightly faster in Q2; its growth is yet invariably constrained by temporary factors of both an external and domestic nature. In 2019 Q2, a number of negative factors fading away along with a rise in public spending will work to accelerate Russian economic growth, the bulletin authors note. This is contingent on the absence of external risks related to the global economic slowdown among others.

The views and recommendations expressed in the bulletin do not necessarily reflect the official position of the Bank of Russia.