Alexei Vedev, Doctor of Economic Sciences, Head of the Financial Studies Department, Gaidar Institute commented to the TASS News Agency on the news that the law on pension indexation with underlying inflation accounted for would be approved until the end of January 2022.

In December 2021, President Vladimir Putin declared that based on the results for 2021 inflation rate may exceed 8%. According to the Rosstat’s latest data, in December 2021 annual inflation in Russia slowed down to 8.39% against 8.4% in November. In light of this, President Vladimir Putin ordered to index pensions above the inflation level of 8.6% and also signed the law on maternity capital indexation to the actual level of inflation, a major support measure for families with children.

Alexei Vedev believes that taking into account underlying inflation, the public sector will not raise wages because it leads to higher costs, while the corporate sector may do that.

“In terms of business, this year is going to be rather complicated. Payment-related problems may arise because some companies have come smoothly out of the crisis, while others have not. The situation in the corporate sector is not homogeneous. But I think we should expect a rise in wages in the corporate sector because the situation on the labor market is rather tight: there are labor shortages that will be driving up wages. The rate of unemployment is currently record-low. All these things will definitely lead to an increase in wages in the corporate sector,” Alexei Vedev explained.

Alexei Vedev noted that a simple increase in wages will lead to inflation. “But I think it will be as moderate as an increase in wages. I expect the rate of inflation to decrease to the level of about 4% by the middle of the next year. It will return back to normal unless anything happens to the ruble exchange rate,” Alexei Vedev said. The expert explained that in theoretical terms a rise in wages leads to higher inflation, but one should not expect a large-scale increase in wages because it involves higher costs.