Households’ inflation expectations in March drop to 9.1%

In March, households’ inflation expectations for the next 12 months dropped to 9.1% (with the month prior at 10.1%) reports the latest Bank of Russia commentary, ‘Inflation expectations and consumer sentiment.’

The decrease in households’ inflation expectations was largely influenced by the stabilisation of the prices of petrol and certain important food products (meat, eggs), as well as adaptation to the introduced VAT hike. That said, in March households continued to be concerned by the growth of utility rates resulting from the “waste disposal reform.” In general, households see the accelerated price growth as temporary, which is in line with the Bank of Russia’s inflation forecast.

Businesses’ price expectations in February and March also decreased after the growth observed since February last year. The decline was rather homogeneous by sector and region. This fact indicates that the pass-through of the VAT hike to prices has largely faded away.

Professional analysts, like the Bank of Russia, believe that the inflation acceleration in 2019 is temporary. According to the Bank of Russia's forecast, annual inflation is set to peak to its local high in March-April 2019 to then drift down to 4% in the first half of 2020, when the pass-through of the VAT hike will be exhausted.