Factors underlying inflation in Russia 2000–2015

Abstract

This paper examines the problem of continuing inflation in Russia in the period from 2000 to 2015. Although factors causing high inflation changed during this period, such factors as money supply, wages, gas and electricity prices, and ruble exchange rate have been essential factors when analyzing inflation in Russia. This paper focuses on gas and electricity prices that represent state-regulated prices in natural monopoly sectors and that have been factors of price increases specific to Russia. They have been raised by the state in order to narrow the gap between their domestic and international prices. It is suggested that there was a turnaround in 2008 when the role of each inflation factor changed significantly. Concerning the rebound of inflation rate since 2014, the overwhelming influence of depreciation of the ruble is indicated. Institutional factors such as the monopolistic structure of the economy that have kept the inflation rate high in Russia are also suggested.

Keywords:

• Russia
• inflation
• money supply
• ruble exchange rate
• gas price
• electricity price
• oil price

Acknowledgments

Earlier and different versions of this paper, some of which were written with Yulia Vymyatnina, have been presented at several international conferences. I appreciate the many useful comments from participants of these conferences and other seminars, including Masaaki Kuboniwa, Byung-Yeon Kim, Joseph Brada, Takahiro Sato, Richard Ericson, Philip Hanson, and Shigeki Ono, among others. I would like to give special thanks to Victor Winston, who always encouraged me to advance studies on the Russian economy with meticulous analysis of the data.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The Federal State Statistics Service of Russia (Rosstat) only recently began to publish monthly and annual average price indexes. Previously, they published only price indexes at the end of the month and year in comparison with the end of the previous month and year. Even now, they attach more importance to end-to-end indexes than average indexes, since price registration or monitoring is performed only at the end of the month and year. Taking into consideration this circumstance, in this paper, price index data of Russia are end-to-end data, unless otherwise stated.

2. Strategiya-2020 (2013) was drafted and published as a result of expert works under the leadership of Vladimir Mau and Yaloslav Kuzminov for the discussion of socioeconomic strategy until 2020 by the request of Vladimir Putin.

3. Because data on the structure of the consumer basket have been available since 2006, data on the consumer basket structure for 2006 were used for the calculation of contributions until 2005 in Figure 2 and Table 1.

4. These prices are purchasers’ prices for industrial organizations published by Rosstat, and they include value added taxes (VAT), excises, transportation, marketing, and intermediary costs, in addition to production prices (Tseny v Rossii 2010, 201).

5. This idea was suggested by Yulia Vymyatnina and Shigeki Ono.

6. Marshallian k is 205.7 for China, 178.7 for Japan (in 2014), 98.5 for Euro area, 69.1 for USA, 64.5 for Saudi Arabia, 58.7 for South Africa (in 2014), and 38.7 for Brazil in 2015 (Calculated from International Financial Statistics, provided by IMF).

7. This method of analysis was employed by Konno (2011).

8. At the beginning of 2008, the Stabilization Fund was transformed into the Reserve Fund and the National Welfare Fund.

9. Data on export prices are from the website of the CBR (http://www.cbr.ru). Export prices include export duties, but their rate has been “only” 30% since 2004. This means that even under the regulated and low purchasers’ prices, Gazprom has enjoyed a good profit.

10. Previously, Government Resolution No. 1021 dated 29 December 2000, approved basic regulation for the state control of gas prices, which illustrates the principle of appropriate costs and profits.

11. In addition, the 2003 table was not so disintegrated: data on oil and gas were integrated (Sistema 2006).

12. See Kaneko (1976, 151–152). Data on the Leontief inverse matrix (b_ij) were published in Sistema (2006, 112–114).

13. It is difficult to understand why the effect of “other industry” was so large. This was due to the large input of products of this industry into production of “other kind of activity.” “Other industry” includes microbiology, mixed fodder, printing, etc. and “other kind of activity” includes information calculation, editing and publishing, guard service, etc. (Sistema 2006, 50–55, 115–116).

14. Import price indexes for the first quarter of 2000 and for the third quarter of 2010 were not published by the FCS.

15. The correlation coefficient is −0.824 in 2000–2007 and −0.761 in 2008–2015.

16. This correlation is fully analyzed in Kuboniwa (2012, 135–136).

17. Strategiya-2020 (2013, 39, 149) also discussed the importance of institutional measures for reducing the inflation rate, including demonopolization of the economy and fostering of competition in the domestic market. Kudrin and Gurvich (2015, 19) pointed out the weakness of the market mechanism as one of the fundamental deficiencies of the Russian economy.