The Russian Central Bank is guided (among other considerations) in its inflation expectations by statistics produced by Rosstat (Russia’s governmental statistics agency) concerning the size of Russia’s imports relative to domestic production. The bank’s inflation expectation in turn is – judging by their policy statements – the decisive factor in its interest rate policy. Unfortunately, it seems that Rosstat has in its published statistics grossly overestimated the share of imports. According to the agency, the share of all imported products of the “consumer basket” would be 38%. Our research shows that the true figure cannot be more than 24%. When approaching the question from different angles we have derived results in the range of 4.9% to 24%.
The biggest problem in Russia’s economy is not its relative dependence on oil and gas revenue, rather it is the punitively high borrowing costs that should occupy the top spot in policy concerns. The Central Bank has been keeping its key steering rate at an inordinately high level of 11% although inflation has long ago fallen well below that. By end of March, the inflation for the past 12 months was down to 7.3% and running forward at a rate of approximately 6%.…
The Russian Central Bank thus proceeds from quite erroneous premises in motivating its cutthroat interest policy by historical inflation records and “inflation risks” based on faulty statistics connected with a distorted view of the share of imports in the national economy. There is yet a third, perhaps more fundamental error, which is the neoliberal belief that inflation is strictly a monetary phenomenon. This when in fact the root cause of Russia’s inflation over the last two decades has been insufficient supply to meet the demand. Therefore, the immediate concern of the Central Bank should be to make affordable lending available for Russian producers. This should be done even at the risk of increasing the inflation in the short-term, because before the supply side is addressed it will not be possible to break the vicious cycle.…
