The Central Bank can’t control inflation due to falling consumer demand and the disappearance of the middle class. About it in a research article, writes Bloomberg.
According to the Agency, the expenses of Russians is constantly shrinking, retail sales fell to a record level in 21 months. In addition, according to research by Sberbank CIB, the middle class over the past two years decreased by 14 million people.
Bloomberg experts noted that the demand of the middle class the most flexible. It is the people with good income use banks, take out loans, when there is not enough cash. That is, the inflation rate is largely determined by their demand.
Now, when the middle class becomes small, the economy will depend more on fiscal policy and budget allocation. And inflation — not so much from consumers as from additional infusions, which creates additional risks.
Moreover, it is important to note that it is not about some rich people. As assessment of the level of income, use the generic approach of the world Bank. If a person spends more than 10 dollars a day, it can be considered representative of the middle class. And these in 2010 in Russia was 74%, in 2014, 61%, now only 51%.
Simply put, it can not lead to some difficulties and mass impoverishment. But for the poor there are very different laws of Economics, rather than the simple ratio of supply and demand.
On the other hand, the fall in demand typically leads to higher inflation, and to its reduction. However, the main thing is not the level of inflation and the level of welfare.
— The middle class in Russia, indeed, disappears, and consumer demand is falling, — said the President of the Union of entrepreneurs and tenants of Russia Andrei Bunich.
— The middle class today are overloaded with loans that typed in “fat” years, and now have to give. To this are added various new fees, introduced taxes on real estate that will grow exponentially.
So no growth in demand from the middle class is not expected. He had been very small. According to my calculations, the middle class accounted for to the last crisis, only ten percent of Russians.
Usually the middle class is determined by three things: income, education and identity. But the fact that people can feel themselves representative of the middle class, but not to be. If you look at the first two options, the middle class today does not reach ten percent.
Real disposable income is constantly falling, they are already minimized. At least since 2008 is a gradual decline in income.
But I do not understand, as due to the fall in demand with a possible rise in inflation. I am a threat to don’t see it. If people have less money they buy less, then inflation will decrease.
Apparently, Bloomberg has in mind that the middle class plays the role of a regulator. When he consumed less, inflation declined. But if you want to reduce consumption anymore, inflation is not reduced. With the fear fiscal stimulus, if the Treasury will be more money for pensions and salaries.
In my opinion, this threat is far-fetched. Oh, and a significant increase in payments to employees and retirees we have in the next years does not Shine.
If we talk only about inflation, the destruction of the middle class and reducing consumption will reduce the growth of prices.
Bloomberg believes that if people have no money, the government will have to index pensions and salaries. But such fears are unjustified.
“SP”: — Inflation will not grow, but also to live better not be.
— About it and speech. The deterioration of living and possibly with zero inflation. Actually, what’s the difference man, what is inflation. It is important, whether he has money only on the Essentials, or have a high-paying job.
This goal is not to exceed the rate of inflation can be reduced to an absurdity. As in the joke: if the person was sweating before death, then everything is fine, the treatment was successful. Supposedly had low inflation, everything is done by science.
But it is worth remembering that all measures to reduce the inflation rate already used. And due to the rates on consumer loans, and by reducing the demand of the middle class. So in the further reduction of inflation will not.
Bloomberg cares not whether people money. But we see that budget expenditures are cut. And this is a flawed logic — in order to fight inflation, making people poorer.
The decrease in demand always leads to lower risk of inflation, — says the head of a direction “Finance and Economics” Institute of contemporary development Nikita Maslennikov.
— If there is no increase in demand, inflation is not growing. Another thing is that nothing unexpected with the middle class is not happening. If you take the criteria of the United States or the European Union, the number of middle-class stable and not growing since the beginning of the two thousandth. And it’s bad because it indicates a General stagnation.
If we talk about our income, then we have the practice of counting is simple: the middle class includes those with monthly salary above six minimum wages. In this regard, the past two months seen a downward trend in the rate of decline of middle class population. But economic growth is forecast only in 2018.
Worries are not the threat of inflation and the General level of social development. Still a lot needs to be done to increase incomes, to increase access to financial services. But the inflation we were hardly threatened. The Central Bank is unlikely to lose the ability to control prices.
But there are other factors. In society is quite high inflationary expectations. Judging by the expectations of citizens, participants of financial market, inflation is over five percent. Is added the uncertainty of fiscal policy, the budget for 2017 has not yet been adopted. Growing concerns about the falling rouble, which increases the demand for currency and really leads to a weakening of the national currency. In the mass consciousness of the fall of the ruble leads to higher prices.
“SP”: — the Middle class was the natural control of inflation, the economy is now more will depend on budget allocations.
— Bloomberg does not understand the Russian specifics. First, through 2019 solved taxes do not change. Maybe they’ll tack on taxes for the oil and gas sector will add to the excise tax.
Of course, some budget infusion affect the growth of prices. In the beginning of the year, all pensioners will pay 5 thousand rubles, then in February will be the indexation of pensions. Should integrate into the economy about a trillion rubles. And the bulk of the money will be spent on savings and consumption. In the first quarter you can expect a jump in prices.
But you must understand that the main problem is the fall of living standards of citizens. Need consistency of fiscal policy and actions of the Central Bank. The expenditure of budgetary funds is a risk. The budget for the following year drawn up with a deficit. The Reserve Fund is close to exhaustion, and now all hope on borrowing. The problem is that the money could be spent on investment, and will spend them on current consumption, on debt service.
“SP”: — Inflation if not grow, then people better not be.
Totally agree. Inflation is not an end in itself. But it is important to understand that economic growth and inflation are interrelated, as the liver and blood. If inflation is above five percent, it is difficult to talk about investment.
With inflation at four percent, we will likely see the inclusion of the investment “engine”. And no matter what anyone said, the only source of sustainable growth is investment. We have the most optimistic forecast of six percent growth over the next four years. If we don’t do investment, higher growth will not be. And to ensure the implementation of already taken government social obligations, we need a growth rate of at least 3.5 percent per year. To this indicator, we do not reach significantly.
And nobody has yet suggested how to find these investments. Any ideas to start the target emission, but also inflation, we get nothing.
Today we have to pay for the inaction of the two thousandth. Had the opportunity to expand the infrastructure constraints, to invest. We came too late. Well, I have to do this today.
Now we finish the year with a decline in real income by five percent. If next year will be a small increase, you can expect to stabilize the situation. I do not want to embellish reality, but it is not hopeless.
There is a risk that inflation will be above four percent. But it will not be associated with a reduction in consumption and increase in tariffs, government subsidies.
