Why Tatarstan’s annual inflation is higher than in Volga Region and Russia

The Central Bank reported on a rise in annual inflation in Tatarstan from 7 to 7,4%. The growth of prices over the year exceeded inflation across the Volga Federal District (6,8%) and Russia in general (6,5%). Moreover, this has been happening since the beginning of the year — in inflation growth, the republic has steadily outstripped both other regions and the country in general. Realnoe Vremya’s columnist, economist with long-term banking experience Artur Safiulin offers to find out why this happens.

Inflation: theory

Inflation is calculated according to the dynamics of prices for more than 500 types of goods and services that citizens often or not really often buy. The sample includes a very wide range of goods, from bread and milk or petrol to fridges and fur coats. The more often a product is purchased, the greater its weight in this basket is.

It is not accidental that current inflation is named food inflation, since foodstuffs have colossally become expensive compared to other goods and services.

A lot of factors influence inflation: presence or absence of consumer demand, harvest, foreign trade restrictions, monopolies, feedstock prices, taxes, tariffs, currency rate, inflation expectations. The latter factor especially matters nowadays, as during the economic uncertainty due to the pandemic, high and unstable inflation expectations impact prices very much. If people expect prices to grow, they buy more today because tomorrow it will be more expensive, as they think.

Also, unstable inflationary expectations strengthen the influence of isolated factors on prices — people start to massively buy food that has temporarily gone up in price, particularly due to a bad harvest, while in people’s minds, this isn’t a temporary event. The expected inflation rate is estimated by manufacturers when fixing prices for products, salaries, amounts of production and investments in development.

Tatarstan: inflation in food and non-food goods, services

All these factors are common for the whole country, but there are regional specifics too. For instance, the Republic of Tatarstan has developed agriculture, therefore there is self-sufficiency in staples. At the same time, there is high competition in production and trade. This totality was used to keep inflation in Tatarstan. This year, the situation has changed.

And the answer to the question of why, as banal as it might sound, is coronavirus or, more precisely, faster recovery of the republic’s economy after the fall in 2020 compared to other regions, hence manufacturers’ higher expenses, higher demand that outstripped production expansion pace. Also, this year, tariffs on utility services have increased more than last year.

As it has been said above, the inflation calculator includes various goods that become costlier at a different pace. According to reports of a local office of the Central Bank, foodstuffs broke all records earlier this year whereas now they have slowed down — from 8,22% in June to 7,79% in July. Higher demand for some vegetables, fruit, root crop many of which have had a good harvest this year have had an impact. It is noted that prices in restaurants and cafes have climbed compared to last year when pandemic restrictions were on. A deficit of staff and price growth in food led to a rise in prices for food from 5,04% in June to 6,76% in July.

Hot weather in Tatarstan this summer didn’t let having a good harvest of grains and forage crops, as a consequence, producers’ costs and prices for milk and dairy rose from 3,95% in June to 4,78% in July. It is noteworthy that this indicator is below the number in the Volga Federal District.

Non-food commodities rose from 8,67% in June to 9,6% in July year on year due to an increase in world prices for some goods, higher consumer demand, greater expenses of manufacturers. There is an ongoing rise in prices for construction materials and furniture due to bigger timber exports because of high prices in world markets and increased demand in the world. As a consequence, there is a shortage of feedstock for timber products in the domestic market.

Also, there is a rise in manufacturers’ costs to buy furniture components and higher demand for products. Inflationary expectations mentioned above clearly describe this situation — people buy furniture thinking this isn’t a temporary occurrence and it will be more expensive. The prices keep growing in the car market — due to increased costs of car manufacturers as a result of growing world prices for metals, logistic delays and a lack of components.

Prices grew in services from 3,33% in June to 3,7% in July, but this indicator is below the general level across the country. The indexation of tariffs on utility services and a rise in the amount of payments for major repairs played a significant role in this growth. Prices for excursions soared from 4,45% in June to 12,63% in July, which is no surprise because a lot of countries are still closed, the summer is here, domestic tourism is reaching the peak of the season. A fall in the cost of mobile services in Tatarstan is good news — in July 2021, these services were 4,75% more expensive than in 2020.

Summaries and forecasts

In fact, higher annual inflation in Tatarstan than across Russia and the Volga Region is not big deal. For instance, Moscow Oblast has similar digits (7,45% in July). Such numbers suggest the development of economic structures, the presence of actively developing sectors in these regions.

The recovery of regional economies is accompanied by demand surpassing supply, producers need time to adjust. Prices in services will go on rising, especially in domestic tourism because there are no alternatives to holidays abroad, while prices for tours to the Black seashore are astronomic.

One shouldn’t expect a decrease in non-food goods, especially in construction. Not only world prices for materials are growing, but suppliers and producers have also already accustomed clients to new prices. And the possible reduction will be minimal because any business will never be against skimming the cream of the growing market — this is the essence of the market economy. Experts and the Central Bank forecast that the growth in prices will stabilise in September and start to fall, especially in the food sector.

Artur Safiulin. Photo: realnoevremya.ru

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial.