ALEXANDER KNOBEL ON THE REASONS BEHIND THE RECENT BURST OF INFLATION IN RUSSIA

In June, according to Rosstat data, annual inflation in Russia accelerated to 6.5%, and consumer prices rose by 0.69% on the previous month. Alexander Knobel, Head of the Gaidar Institute’s International Trade Department, told TASS about the internal inflationary risks factors.

“Prices for goods and services in Russia are influenced by a number of factors. Firstly, the restrictions on international tourism imposed in response to COVID-19, which boosted the demand for domestic tourism, have been exerting significant inflationary pressure on prices for passenger railway and hospitality services,” stated Alexander Knobel, specifying that as far as the general price level was concerned, this effect, although protracted, was still only temporary.

The less pronounced increase in prices for air travel services, according to the expert, is associated with the increased competition and the availability of a part of the aircraft fleet that was previously used in international traffic.

“Secondly, the concessional mortgage program caused a sharp increase in housing demand and housing prices; thus, for example, in Moscow over Q1 2021, prices jumped 22%. This translated into an increased demand for building construction materials, including those that are practically never exported (brick, glass),” he added.

“Thirdly, an additional price growth factor for ‘tradable’ building construction materials (fittings, timber materials used in private low-rise residential construction projects) has been the movement of the ruble forex rate and world prices for these particular goods. The ruble forex rate stays at its previous year’s level, while world prices for timber and steel are on the rise. World prices of timber futures, in spite of their significant decline over the previous month, remain at a significantly higher level compared to the average prices of previous years,” Alexander Knobel pointed out.