Gaidar Institute researcher Evgeny Goryunov told the Nezavisimaya Gazeta that although the risks of the world economy’s fall into stagflation are not very high, they cannot be ruled out entirely. That was his comment on the news that the energy crises in Europe and China dramatically changed the situation in the world economy, which may trigger a production decline and stagnation.

Industrial production in Japan is already declining, there are signs of a recession in China, and the UK has reduced its automobile output. Russia, where the Central Bank is constantly tightening its monetary policy, is not guaranteed against stagflation, either. And in the summer, the Russian Federation already demonstrated zero rates of output growth in some sectors of the economy.

“This scenario is most likely for the US economy, where inflation is expected to be at the level of 4.2% by the end of 2021 (the Federal Reserve’s forecast). The probability of Russia falling into the stagflation spiral seems to be relatively low. At present, the factors that can contribute to a rise of inflation in Russia are inflationary expectations, the forex rate movement, and production capacity utilization. After a rapid economic activity recovery in H1 2021, aggregate demand growth declined. Growth in the industrial sector is weak or non-existent. Investment is also more likely to stagnate, so there will not be any sustained upward pressure on consumer prices from the demand side. Inflationary expectations are elevated, but they still remain at a moderate level. High oil prices support the forex rate, which means that import prices will be rising more slowly,” Evgeny Goryunov noted.

Thus, the expert’s conclusion is that no stable pro-inflationary pressure has been visible as yet, that is, the current inflationary surge is only temporary. “However, if by mid-October there is no decline in the rate of inflation, the Bank of Russia at its next meeting will certainly raise the key rate, thereby taking a more conservative and cautious stand, in fear that the current jump in inflation will provoke an increase in inflation expectations,” Evgeny Goryunov said by way of summing up.