VIII Международная студенческая научная конференция Студенческий научный форум - 2016

ПРОБЛЕМА ИНФЛЯЦИИ КАК ОДНА ИЗ КЛЮЧЕВЫХ ПРОБЛЕМ МАКРОЭКОНОМИКИ РОССИИ

Чекиров С.Ю.

Финансовый Университет при Правительстве Российской Федерации

Москва, Россия

THE PROBLEM OF INFLATION AS ONE OF THE KEY PROBLEMS OF RUSSIAN MACROECONOMICS

Chekirov S.Y.

Financial University under the Government of the Russian Federation

Moscow, Russia

Nowadays in Russia there are many economic problems. The main and most important in the market economy are macroeconomic problems. Today Russia's economy operates in conditions of the economic downturn, which is caused by external and internal causes that impact on all spheres of social reproduction. In this regard, you can highlight some current macroeconomic problems: the decline in volume of GDP, rising of the unemployment level, capital flight from the country, ruble devaluation and high level of inflation. In this paper I would like to pay attention to the last one of the mentioned above.

Purpose of the work: using the actual information, estimate the situation with the level of inflation in Russia at the moment, compare it with the statistics of past years, and, based on this analysis, using theoretical and historical aspects, make a conclusion about the inflation existence in Russia.

THE CONCEPT OF INFLATION

Theory

Inflation - excessive increase in the number of paper money circulating in the country, causing their impairment, in other words, is the growth of the general price level. If all the prices of all goods grew at the same rate and the same time, it would not be a disaster, because the predictable inflation is predictable, and therefore - is counted in prices. But the main problem is in the fact that the overall increase in prices combined with an uneven movement of the prices of various goods. Prices of some goods jump, of others rise in a more moderate pace, and the thirds just do not grow. With the formation of market relations, inflation has become an integral feature of the Russian monetary system. It is characterized by a close intersection of cost inflation¹ and inflation of demand² and is accompanied by severe social-economic consequences.

Inflation does not have a single cause, but several interconnected reasons. The causes of inflation are both internal and external. The external factors include: reduced revenues from foreign trade, the negative balance of foreign-trade and balance of payments. The internal ones consist of: the state's budget deficit, if it is covered by government loans and additional issue of money. The basis of its appearance are high government spending. A special role here is played by the military spending. Excessive investing can also be included (investment volume may exceed capacity of the economy), the credit expansion - increase in the scale of bank lending over and above the needs of the national economy. High social costs, are not corresponding to the potential of the national economy, also cause to inflationary price increases.

Almost the entire population is suffering by inflation, but to a greater extent - those who have their own savings, whose purchasing power decreases with the rise in prices. This also applies to those savings, which lie in the bank. At that moment, when the inflation become greater than the interest rate, all benefits from the savings disappear. Those people, who had a fixed income also suffered. Those whose income is not fixed, can even make a profit if the nominal income growing faster than the level of prices - then, the real income increases too.

Inflation is one of the most acute problems of modern economic development in many countries. Nowadays, Russia ranks 13th in terms of inflation in the world.³

RESEARCH

Historical features of inflation in Russia

In every country and at different times the inflation is caused by a special set of reasons. Modern inflation in Russia can not be understood without taking into account its historical features, resulting from the plan-distribution system of economic management.

To better understand the causes and specifics of inflation is necessary to consider the features of planning price-creating system. Such a system, which means the centralized establishment of state's fixed prices for most products and services was an integral part of the planned economy. While product moved from the producer to the consumer, a serial account of costs, added to each stage, and, respectively profits on these costs, was produced in price. State prices were planned standards of expenses and profit in the national economy. Self-cost of products was considered as a base price and took 85% in the cost structure. Because of prices were primarily a means of covering and cost accounting, and demand, as a rule, had no effect on the price level, such price formation came to be called expensive. Of course, prices, built on the cost principle and fixed within a few years, could not serve as an indicator of supply and demand for the product, could not show to the manufacturer the dynamics of consumer preferences. It follows that the transition to a market economy mechanism, where demand determines through the price level the scale of production, objectively demanded reform the entire system of prices.

Price reform was one of the objectives of the Government's program of 1991, however, it carries out not quite elaborately. Initially, the stake was a gradual change in the production and prices under state control. Producer prices were corrected in January, while retail prices have changed only in April. On average, prices increased by 60%. Thus, profits grew and were not taxed, and a huge burden of subsidies and compensations growth lay on the budget. After the increase in prices the corporate profit tax was reduced, which allowed them to increase the payroll. As a result, in 1991, retail prices increased by 142%, while wholesale prices in industry by 236%. At the same time the volume of production decreased by 11%, and in general for the period from 1989 – by 17%. The result was the deregulation of the product market and the development of total shortage, aggravated by inflation expectations. At the same time the budget deficit increased (31% of GDP), covered by emissions. A huge monetary overhang appeared, ready to overwhelm the budding market. The implementation of this policy was complicated by considerable difficulties. The political crisis in 1991 further complicated the situation and led to the abandonment of the concept of gradual reform. January 2, 1992 was released 80% wholesale and 90% retail consumer prices. Removal of price controls was accompanied by the liberalization of foreign trade and the exchange rate of ruble. Price liberalization has caused almost five-fold increase in retail prices for the first three months of 1992 compared with December 1991, while wholesale prices have for the first 2 months increased by almost three times. The initial rise in prices after liberalization in Russia was higher than in other Eastern European countries, undergoing reform.

Shock therapy in 1992, based on the principles of market fundamentalism, plunged the country into hyperinflation and, as a result, led to a sharp slowdown in economic growth and the deterioration of the social situation of the population. The announced policy on the financial stabilization and the fight against inflation was ensured by reducing state’s spending and limit of the money supply. Privatization (almost free) of state property and unjust loans auctions formed a group of new Russian billionaires.

Today, our country is in the process of becoming of a full-fledged market economy, which will allow Russia to take a higher position in the world arena. Unfortunately, along with the positive effects, that a modern transformations of our economic system have, there are also negative ones: the economic crises, the devaluation of the national currency and a common monetary instability, disproportions of the payments balance, and so on.

Comparative analysis of the actual information about Russian inflation with the statistics of past years using CPI and deflator of GDP indicators

Inflation based on the calculation of the consumer price index (CPI) for goods and services, officially published by the Federal service of state statistics of the Russian Federation.

Let’s consider information about inflation in Russia for the period from 1995 to 2013 years.

Table 1 shows us the change in prices in percentage terms. Decreasing of price is shown with a minus sign. An analysis of the dynamics of change in the level of inflation in Russia since 1991, shows a gradual recovery of the economy after the crisis shocks in 1992, 1998, 2008 years. During 2012, the inflation rate remained at the level of about 6.6%, and in 2011 - 6.1%. This was due to the resumption of the country's economy after the 2008 year crisis.

Table 1

Change of inflation in Russia for 1995—2013 years.

Source: Rosstat

According to many economists, inflation in Russia has the following specific features:

1. The growth of tariffs for housing and communal services (Department of Housing and Utilities - DHU).

Before talking about the growth of DHU tariffs in the last three years (from 2010 to 2013), it is necessary to familiarize with the trend of growth, which started in 2000 (Figure 1).

Figure 1. Dynamics of cost of certain types of DHU services for the population (Source: Rosstat)

During the period from 2000 to 2009, the cost of DHU services increased by 9.2 times. The average-year inflation rate in 9 years accounted for 12.4%, while the average growth in DHU tariffs - 28.7%. In 2010, prices for utilities increased by 13%, in 2011 - 11.7%, and in 2012 - 12-14% (depending on the region). However, the predictable rise in prices on tariffs in 2012 had range from 6 to 6.5%, on a par with the level of inflation. In 2013, growth of prices was on the average 15%.

With what this rapid rise in DHU linked?

Firstly, with an increase in prices for DHU resources, which is dictated by the natural monopolies in their respective fields; and, secondly, with the costly nature of the rise in prices, because the increase in prices expenses not because of the presence of competitors, but definitely because of the expense of increase in the cost of the expenses on providing these types of services.

It should also be noted that the rise in DHU tariffs outgoes not only the growth of the general price level, but the growth rate of population income levels.

2. The rise in prices for essential goods and food products. Consumer price indices for food products in the period from 2009 to 2013 years are presented in Table 2.

Table 2

CPIs for food goods in RF in 2009 – 2013 years.

Source: Rosstat

According to the table, we can say that over the last 5 years a steady trend to an increase in the CPI was not observed. The dynamics of this indicator is very spasmodic. And if we see a sharp increase of 6.8% in 2010, this increase is immediately offset by lower this indicator in 2011 by 9%. And then the dynamics is in the range of 7-7.5%. Comparing 2013 and 2009, we can say about the growth of the CPI by 1.1%.

The increase in the general level of prices of food goods due to the appreciation of the production process, since the growth rates for water, electricity using in the production process, can influence on the final price of good, i.e., in this case there is a costly nature of the price increases.

3. The imbalance between prices and wages.

At the present stage of development the existing disproportions are explained by the lack of cross-sectoral policy balance which allowed to match the size of wage to the level of prices for various goods and services.

4. Rise of inflation due to the import of goods.

The openness of modern economies, including the economy of our country, not only leads to expansion of the market and industrial relations, but also to the risk of imported inflation. In our country, this risk is very large, as in Russia imported a very wide range of goods. This is mainly goods that are not produced in our country or have a lower quality compared to foreign competitors. For example, before Russia joining the WTO, customs duties on imported cars amounted to 30% in order to support the domestic auto industry, and currently stands at 25%. But, unfortunately, the reduction of import duties does not low the price and increase the income of sellers who do not try to reduce trade margins.

5. Increasing of prices by subjects of small and medium-sized businesses who are struggling in an economy of our country. This is due to economic instability, high taxes, rise in price on production costs, high interest rates on loans and so on. It is not beneficial for entrepreneurs to low prices for the products, the self-cost of which is not cheap.

6. A mechanism of inflation expectations, which exceeds the projected and actual inflation levels and makes the population to "overstock", creating unnecessary demand, leading to higher prices.

The above mentioned features of inflation processes in Russia indicate their unmonetary nature, i.e. about independence from the sphere of circulation of money. Accounting for these factors allows the state to create more quality anti-inflation policy.

The main directions of this policy are:

1. The fight against monopolies;

2. Establishing limits to the growth of tariffs for housing and communal services, by increasing the growth of which depends directly on the price;

3. Promotion of competition and creating favorable conditions for the growth of competitiveness of domestic producers, which may represent the market better and more affordable for the Russian consumer goods and services;

4. Legal regulation of trade margins, reducing them;

5. The establishment of an appropriate mix between exports and imports, a quantitative increase in the first;

6. Increase the stability of the national currency, both on domestic and foreign markets.

At the macro level anti-inflationary policy of the Russian Federation should focus on promoting and sustaining economic growth, structural transformation and other spheres of national production, attraction of investments in science and innovation, as well as reducing the outflow of funds abroad.

The effectiveness of state policy to fight inflation can be seen in the following chart, which shows the levels of inflation for the period from 2008 to 2013 (Figure 2).

Figure 2. Inflation level in Russia in 2008-2013 years, %. (Source: Rosstat)

Figure 2 shows that since 2008 the rate of inflation fell sharply from 13.28% to 8.8% in 2009. This was achieved by reducing the price of barley and wheat, through the introduction of higher export duties on this type of product, and reducing import duties on derivatives products (milk, cheese, butter). Since it is raising the prices of basic foodstuffs has caused a significant increase in the level of inflation, it is through these measures succeeded in reducing inflation.

Further reduction of inflation to 6-6.5% due to the lack of consumer demand, a decrease in capital inflows, as well as the strengthening of the national currency. In addition, the state is actively inhibits the growth of prices for food and medicine, and in the future may be able to significantly affect the prices of DHU.

Now let’s consider 2014-2015 years.

In 2014, due to the economic situation happen again jump in inflation. In 2014 it amounted to 11.36% (Figure 3).

Figure 3. CPI on all goods and services in 2008-2015 years (at the end of period, in % to December of the last year). (Source: Rosstat)

The main reasons for such jump are:

- Increase in excise duties on motor fuel;

- The depreciation of the national currency at the beginning of the year (the potential contribution to inflation is estimated at 0.5 percentage points);

- Rising inflation expectations because of the weakening of the ruble;

- The crisis in Ukraine;

- Increases in prices for some food products (increase in pork prices due to export ban);

- Introduction to the product of the embargo on the United States, the EU, Canada.

Response sanctions that Russia announced to the West, could push inflation in the country, and will weaken the purchasing power of Russians. All this has affected the high level of inflation in 2014.

Let’s consider the dynamics of inflation for 2015 year.

Figure 4. Level of inflation (J, F, M months of 2015). (Source: Rosstat)

The government is conducting a series of measures improving the anti-inflation policy.

Some of them:

1) Limiting the growth of tariffs for housing and communal services the inflation rate over the past year (assuming the action program until 2018);

2) Creation of stocks of goods and products seasonal demand (particularly grain, diesel fuel, etc.).

3) The tightening of monetary policy (monetary contraction expense of rising interest rates. In this case, expensive loans are not available);

4) Establishment of a special mechanism with the participation of the Central Bank and Ministry of Finance, which will increase the coherence of the monetary authorities.

Perhaps, in the performance of these activities, in compliance with all the conditions, the Government of the Russian Federation will be able to control the rate of inflation. But, unfortunately, at the moment it has the highest inflation rate in the last four years, and this may lead to even greater social tension in the country.

The growing political tension around Ukraine, the tightening of economic sanctions against the Russian financial sector in 2014 led to the fact that the increased uncertainty and deteriorated confidence of the corporate sector in Russia. Restricting access of Russian companies to international financial resources and the tightening of monetary policy contributed to the increase in the cost of borrowing, which is quite a negative impact on the investment climate and consumer demand, thereby causing the acceleration of capital outflows and increase in inflation and inflationary expectations population. A significant drop in oil prices and a worsening of the external economic situation in the spring of 2014 led to a further deterioration in conditions of macroeconomic stability.

Forecasts of CPI: Consumer Prices Index for 2016.

Ministry of Economic Development expects the recovery of the Russian economy, and reducing the consumer price index in 2016. The following year the rise in prices is below 10%, and by 2018 will reach 5%, believe in the ministry. At the same time, inflation could again fly up with a decrease in oil prices and the deterioration of the geopolitical situation.

Inflation growth.

The rapid rise in prices began in the second half of 2014. The main drivers of growth were:

- The collapse of oil prices and the devaluation of the ruble;

- Limiting the import of products which has led to a reduction in supply;

- An increase in credit rates.

In such circumstances, the index of inflation in the past year for the first time in a long time became a two-digit. In early 2015 the situation continued to deteriorate. During January-March price growth reached 7.4% year on year, which is more than twice last year's figures. However, the rise in oil prices allowed the ruble significantly strengthened against the dollar. As a result of the stabilization of the foreign exchange market central bank in several stages lowered the key rate, which was the key to reduce the cost of loans to the corporate sector. The government estimates that in the near future we can expect a stabilization of prices.

Prices stabilization.

Ministry of Economy of Russia declares overcoming the peak of inflation, which in the first quarter reached 16.7%. This position is confirmed Prime Minister Dmitry Medvedev. Starting from the second half of the growth rate of prices are down 11.9% at the end of 2015, about 7% in 2016 and 5% in 2018. In April of this year, consumer prices rose 0.5%, the lowest level since August last year. The decline in inflation was the result of cooperation between the Government and the Bank of Russia and the implementation of anti-crisis program.

The expectations of experts polled by Bloomberg agency, practically coincide with those assessments: the rise in prices in 2016 will be 7.25%, and in 2017 will drop to 6.7%.

The key factors slowing down the rise in prices were:

1) Restoring of the value of the Russian currency.

2) Reducing of inflation expectations.

3) A positive signal of the Russian economy.

Additional risks.

Experts of MER allow inflation to increase to 20% if the price of 1 barrel of "black gold" is below $ 50. Another collapse in the oil market may cause several factors:

- The growth of oil production in the United States, which at the end of 2014 was 13.2%, and an increase in oil inventories in storage tanks;

- The desire of OPEC to keep its market share, and the failure to reduce oil production quotas;

- Possible return to the market of Iranian oil, with the largest exporter if the sanctions are lifted.

The decline of oil prices will put pressure on the position of the ruble, which could lead to the next stage of devaluation. As a result of fall in the value of the ruble is inevitable rise in prices for imported goods.

In the forecast of Economic Development, the consumer price index for 2016 is determined by taking into account the existing sanctions. A more optimistic scenario, the lifting of restrictions in the next year will boost the economy and reduce inflation. Expansion of the sanctions caused by the breakdown of the peace process in the east of Ukraine, will be a new challenge to the domestic economic system, and will be another driver of inflation.

The consumer price index reflects the change in prices for key goods and services in a variety of time periods. This index is used to index the following economic categories: payments to the population, benefits and pensions, tariffs, taxes and more.

The rise in prices next year will depend on external factors. The movement of oil prices and the development of the geopolitical situation will determine the position of the ruble. At baseline forecast, inflation will slow by almost two times - up to 7%. When a less favorable scenario, the actual consumer price index for 2016, calculated by Rosstat, will be substantially higher than forecasts of Ministry of Economic Development.

Few words about GDP: theory and actual statistics.

Gross domestic product (GDP) - one of the most important indicators of the system of national accounts, which characterizes the final result of production activity of economic entities - residents of the country. It reflects the value of final goods and services produced by these units during the reporting period in the prices of final customers. Gross domestic product can be calculated in three ways: the production, by the use of revenues and the method of formation of GDP by source of income.

GDP calculated by production method is the sum of gross value added of all industries or sectors in basic prices plus net taxes on products (taxes on products less subsidies on products).

GDP, calculated by the using of income method is the sum of the costs of all institutional sectors of final consumption, gross capital formation and net exports.

The method of formation of GDP by source of income as the sum of the primary income paid by residents of participating units of production, is not independent, since in accordance with the methodology, not all indicators of incomes can be measured directly and some of them are calculated by the balance method.

Calculating of the GDP is producing with calculator:

At the level of the national economy quarterly calculate the GDP deflator, is used to determine the real GDP.

GDP deflator = Nominal GDP / Real GDP

Nominal GDP - is the value of all goods and services produced in the economy in a given period, calculated in the prices of this period. Real GDP - is the value of all goods calculated in the prices of a fixed base year.

Table 3.

Real GDP of RF

Source: Rosstat

Rosstat: Russia's GDP in the 1st half of 2015 decreased by 3.5% in the 2nd quarter - by 4.6%

The volume of Russia's GDP in the 2nd quarter of 2015 at current prices amounted to 17.4914 trillion rubles, according to the materials of the Federal service of State statistics. The volume index of GDP relative to the 2nd quarter of 2014 was 95.4%, compared to 1stquarter 2015 - 104.7%.

GDP deflator index for the 2nd quarter of 2015 relative to the prices of the 2nd quarter 2014 amounted to 106%.

The GDP for the 1st half 2015 at current prices amounted to 34.0561 trillion rubles, the index of its volume relative to the 1st half of 2014 amounted to 96.5%.

CONCLUSION

Historically, inflation in the Russian economy has arisen in the 50-60s of 20th century because of the sharp drop of the efficiency of the national production. It had a hidden character and manifested in the goods deficit and significant divergence in prices: low prices for end products and high for all kinds of raw materials.

Openly an explosion of inflation occurred in January 1992, when all prices became free, except the prices of energy and food. Since then, the inflationary process began to increase rapidly. Russian type of inflation is different from all other known types, due to the conditions of its development (the transition from a planned to a market economy), and high growth rates of prices.

Since 2000, the Russian economy began the recovery growth.

The main factors of this growth were: the sharp devaluation of the ruble in end of 1998 - beginning of 1989. (which gave rise to the development of enterprises with export and import-replacing orientation); and rise of prices for oil, gas and other commodities in 1999-2007 years (this made it possible to ensure the profitability of enterprises in this sector of the economy, the activity of trade and payment balances, increase the foreign exchange reserves of the Central Bank in times, reduce the external debt of the state and the costs of its maintenance in five times, ensure budget surplus and even create a huge stabilization fund).

Of course, all of this strengthened financial and banking systems of the state, but it had mixed effects on the dynamics of prices in the country. That is the drama of inflation's jumps and anti-inflationary attempts to take it under control. And this drama demonstrates the features of the Russian inflation:

- Firstly, it shows the chronically high inflation level in the reforming Russian economy, that is higher in 3-5 times than the same indicators of developed countries;

- Secondly, the main focus in anti-inflationary policy of the Russian Federation is on monetary factors, which can be effective only in conditions of a well-balanced economy and consistent state policy of restraint of monopolistic price increases;

- Thirdly, the most important causes of inflation in recent decades were the technological backwardness and the increase in production costs, monopolistic pricing of raw-material and infrastructure sectors, the growing dependence of the economy on imports of consumer goods and food.

Thus, the most important condition for overcoming of inflation is the radical restructuring of production on a new technological basis and the new structure, the transition from market-inertia to breakthrough-innovation strategy of economic development.

List of sources:

Literature:

Nagornov A.P. "The policy of inflation targeting // Targeting in Russia";

Belousov E.S. "Inflation and anti-inflation policy in the Russian Federation: a Practical Guide";

Cheremsin V.E. "The causes and forms of inflation in the national economy at the present stage".

References:

http://www.statbureau.org/ru/inflation-charts-api

http://sibac.info/18333

http://cyberleninka.ru/article/n/inflyatsiya-v-rossii-faktory-i-tendentsii

http://timesnet.ru/economy/3660/

http://www.garant.ru/products/ipo/prime/do

http://economy.gov.ru/wps/wcm/connect/

http://inosmi.ru/russia/20141216/224960561.html

http://www.cbr.ru/publ/Stability/

http://www.tpp-inform.ru/news/19030.html

http://2016-god.com/indeks-potrebitelskix-cen-na-2016-god/

http://www.consultant.ru/cons/document/cons_doc_LAW_19571/c9b8efead0553f8b4e9b7c994634623c5ba6f5e3/

http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/tariffs/

http://www.finam.ru/analysis/newsitem/rosstat-vvp-rossii-za-1-polugodie-2015-goda-snizilsya-na-3-5-za-2-kvartal-na-4-6-20150908-162436/

Date of appeal for all Internet sources: November 2015.

1^ Cost inflation - a rise in prices under the influence of the increase in production costs, especially wages under the beginning of inflation.

2^ Inflation of demand - the kind of inflation that occurs with extremely high demand with respect to supply. It manifest in the economic situation, when the total income of the population and firms are growing faster than the real growth of volume of goods and services occurs. Typically, inflation of demand occurs at full employment and full capacity utilization, when production is unable to respond to the excess cash in circulation by the necessary increase in the output of goods and services. Thus, the excess demand, resulting in high prices for its products. It does not matter, because of what exactly demand was increased - due to increased government spending (government orders), or due to increased demand in the business environment (expansion in investments).

3^ According to information from the article "Inflation level in the Russian Federation" from the StatBureau's site (http://www.statbureau.org/ru/russia/inflation). Date of appeal: November 2015.

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