ALEXEI VEDEV: “INFLATION WILL NOT BE A MAJOR PROBLEM FOR RUSSIA IN 2023”

Alexei Vedev, Doctor of Economic Sciences, Head of the Financial Studies Department of the Gaidar Institute has commented on the RBK’s survey by SberCIB analysts who claim that budget deficit financing will drive up inflation by 3.9 p.p.–4.5 p.p. in Russia in 2023.

According to the analysts’ forecast, amid insufficient tax revenues to the budget because of the sanctions pressure budget deficit financing in 2023 may contribute 3.9 p.p. – 4.5 p.p. to the forecasted inflation. If budget deficit financing tends to make contribution of 4.9 p.p.–5.5 p.p., the Central Bank of Russia will have to raise the key rate to keep the resulting inflation within the forecasted range of 5%-7%, SberCIB notes.

In Alexey Vedev’s view, SberCIB analysts’ assessments are “a pure econometric exercise”, while in reality the influence of the money supply on the rate of inflation is negligible due to low monetization of the economy (the ratio of money supply to GDP).

“Further, the inflation will not be a major problem for Russia in 2023: it is most likely to decrease relative to 2022 and stay within the range of 4%–6%,” Alexei Vedev notes.

Alexei Vedev believes that in future it would be correct to expand the budget deficit at least to 3% of GDP in order to invigorate the economy and stimulate economic growth.