Government looks to be beating inflation. Remembering 1970s. China doesn't need timber
December 2, 2021
Inflation looks to be beating forecasts
By November 29, consumer inflation since the beginning of the year amounted to 7.51%, according to Rosstat data. This is higher than the government’s forecast, which is the basis for the budget for 2022 (7.4%) and is within the Central bank’s forecast range for 2021 (7.4%-7.9%). This forecast also turned out to be underestimated.
In this regard, it should not be surprising that the Chair of the Bank of Russia, Elvira Nabiullina, will openly speak about the inevitable increase in the key rate at the next meeting of the Board of Directors on December 17.
Government looks to be beating inflation
Speaking at the Russia Calling! forum, President Putin said: “Russia and our citizens are also feeling, unfortunately, this global inflationary pressure… It is important not only to cope with the effects of inflation but also to act proactively, removing the factors that are pushing the rise in prices.”
The Russian government heard the President’s order and is ready to use any administrative methods to limit price increases. First, it became concerned about the rise in gasoline prices: The traditional rise in excise taxes at the beginning of the year and changes in the taxation regime for oil companies could lead to a one-time increase in prices within Russia (by 4%). This “must not be allowed,” the government working group stated in its decision.
A price increase can be avoided by adjusting the so-called “damper” parameters, a complex structure linking domestic gasoline prices, and the transfers between the refineries and the budget. Omitting the presentation of technical details, the government proposes to decrease the level of indexation of gasoline prices in 2022 to 3% (against the 5% agreed earlier) and to increase subsidies paid to gasoline producers from the budget.
In my opinion, the entire system of the “damper” mechanism is highly ineffective. Although it allows avoiding sharp fluctuations in domestic gasoline prices caused by the dynamics of world oil prices, the most wealthy groups of the population are the main beneficiaries of budget subsidies—those who own cars. The more you drive, the more subsidized you are.
The hint from the government
Owner of two of the largest fertilizer producers in Russia, Uralchem and Uralkali, Dmitry Mazepin, said that at the government’s request, his companies are ready to fix fertilizer prices for the domestic market until the end of 2022.
“The government gave us a hint that they would like prices to be fixed till the end of [next] year... We as a company—I am responsible for my companies—we are ready to freeze prices until the end of 2022... but we will return [to the discussion] at the end of May,” he noted. At the same time, Mazepin said that consent to freeze prices on producers should be accompanied by guarantees for the purchase of fertilizers from consumers.
Another victim
The Russian Prosecutor General’s Office brought new claims against Russian businessman Sergey Petrov and the Rolf company, which he owned until 2018. Until 2016, Petrov was a member of the State Duma and openly opposed the Kremlin’s malicious legislative proposals including abstaining from vote on annexing Crimea. The FSB suspects him of funding the organizations of Alexei Navalny and other opposition political projects.
In 2019, the Investigative Committee accused Rolf’s management of committing an unprofitable transaction with an affiliated non-resident company that occurred in 2014—Rolf repurchased the ownership rights to dealerships and land plots that had previously belonged to a non-resident. An independent appraiser carried out the asset valuation for this transaction, and, according to experts, it was relevant. As part of this case, one of the managers of “Rolf” was arrested for the investigation; three others managed to leave Russia. Sergei Petrov also left his country in 2019.
A new charge was brought directly against the businessman. For some unknown reason, Rolf became a co-defendant for his obligations—an amount corresponding to the claims of the Prosecutor General’s Office was blocked on the company’s accounts.
And one more
The FSB gave U.S. citizen Michael Fries, who worked at the Faculty of Liberal Arts and Sciences at St. Petersburg State University, three days to leave Russia, where he had lived for 10 years. In addition, he is banned from entering Russia for the next five years.
Traditionally, the FSB does not disclose the reasons for such bans. According to the media, it happened because Fries collaborated for several years with Bard College, whose activities have been recognized as undesirable in Russia.
Food exports are growing, but this does not change the situation in the economy
By the end of November, Russian exports of agricultural products amounted to $31.2 billion, which is higher than last year ($30.5 billion), the Ministry of Agriculture said.
The bulk of exports falls on grain, $9.4 billion (an increase of 10% over 2020); vegetable oil, $6.2 billion (plus 49%); and seafood, $6.1 billion (29% increase). The export of Russian products is diversified: The most significant buyers are the European Union (13.4%), Turkey (12%), and China (10%).
Russian agriculture has been growing steadily since 1999, which is associated with the adoption of the Land Code in 2001 that allowed private ownership of land in Russia and the creation of a comprehensive support system for farmers in the early 2000s. Contrary to the Kremlin’s assurances, the ban on the import of food from Western countries, introduced by Putin in 2014 (counter-sanctions), did not significantly impact the dynamics of the sector.
New export records should not be misleading—agricultural products account for less than 10% of all Russian merchandise exports. It is almost unbelievable that agriculture will become a driver of sustainable growth for the entire economy.
China temporarily does not need Russian timber
Since December 1, China has closed railway border crossings with Russia for all cargo, except for container cargo. Wood exports will be hit hardest—the railroad has been the main export channel to China.
The restrictions imposed are related to China’s fears about the possibility of coronavirus infection entering the country—it seems that Beijing does not believe the Kremlin can limit the spread of the pandemic.