Inflation expectations remain unchanged in July

Despite a slowdown in inflation, households’ inflation expectations remained unchanged in July, at 9.4%. Business price expectations declined, however. Long-term inflation expectations of financial market participants continued to display a downward trend. This is evidenced by data given in the current Bank of Russia commentary ‘Inflation Expectations and Consumer Sentiment’.

Inflation expectations remain elevated and unanchored. Households continue to expect prices to grow by 9.4% in a year (the same estimates were made a month earlier) and in three years inflation will exceed 4%.

According to the Bank of Russia’s survey, business price expectations for three months ahead dropped in July following a rise in June caused primarily by one-off factors. The decrease in expectations affected all types of activity except for the mining and quarrying sector, where enterprises pointed out global expansion of metallic ore prices and the OPEC+ deal extension. The construction sector registered the maximum decline in expectations which was related to an adjustment following the previous month’s increase due to the introduction of escrow accounts. The ruble’s appreciation was also a main factor in the decline of price expectations.

Inflation expectations of financial market participants continued to decline. In July, inflation for four and nine years ahead priced in inflation-indexed government bonds stood at 3.7% and 3.8% respectively. This is the minimum level over the entire history of observations.