Petroleum prices still weigh on inflation expectations

In June, Russians’ inflation expectations for the year ahead rose to the level seen between September and October last year. The indicator went up to 9.8% on 8.6% in May, as evidenced by the data from an inFOM survey commissioned by the Bank of Russia.

The growth is virtually attributed to the only driver — petroleum prices. This follows from respondents’ answers to a wide scope of questions about growing prices for goods and services. The arrival of new crops helped a decline in prices across some fruit and vegetables in June. However, the poll data show this fact went largely unnoticed by respondents. This is testament to the fact that household inflation expectations are highly sensitive to price spikes in individual products.

Once normalised as a result of the recent government measures, the fuel market is expected to bring about a stabilising effect on household inflation expectations.

The Bank of Russia calculates that expectations will resume their decline somewhat later than initially expected, mainly because of the tax policy changes. For the Bank of Russia, the big focus remains the response of inflation expectations — of which scale and duration are yet difficult to quantify at this point in time.