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- Reduced cost: the authorities proposed to fix the prices of basic products to combat inflation
Reduced cost: the authorities proposed to fix the prices of basic products to combat inflation
The authorities are being asked to fix the prices of basic necessities for three to four months. Long-term agreements between manufacturers, retail chains and the government will help curb the rise in the cost of these goods, according to a report by the Center for Macroeconomic Analysis and Short-term Forecasting (CMAKP, Izvestia has reviewed it). Annual inflation is currently 9.3%. According to the analysts' proposal, meat, sugar, vegetables and fruits should be frozen. Other measures include purchases in friendly countries, direct supplies from farmers, and reduced duties on goods that are in short supply. What are the risks of such decisions and what is driving up prices right now — in the Izvestia article.
Freezing prices for socially important goods
Annual inflation in mid-July was 9.3%, according to the Ministry of Economic Development. This level corresponds to the agency's average annual forecast, and by the end of 2025, the ministry expects a slowdown in price growth to 7.6%.
This is already happening now, under the influence of high interest rates, rising savings, and the strengthening of the ruble. But these factors are temporary, and in the future the pace may accelerate again, warns Dmitry Belousov, head of the CMAKP department, in a recent report "Etude 11. Inflation: a brief overview" (the editors analyzed it).
The expert listed a number of measures that can help reduce inflation in the country. In particular, it is proposed to temporarily freeze prices for socially important goods for a period of three to four months. We are talking about meat, eggs, bread, potatoes and other essential products. According to the report, this can be achieved through long—term agreements between producers and consumers, both corporate (including retail chains) and government. The authorities should facilitate the conclusion of such agreements.
In Russia, there is a list of socially significant goods, which includes 24 basic products, including meat, milk, bread, vegetables and fruits. The authorities can regulate their prices if they rise in price by 10% within 60 days in a particular region. However, this mechanism is rarely used: for almost 15 years it has been used only a few times, for example, to regulate prices for buckwheat, sugar and sunflower oil.
The FAS constantly monitors prices for socially important products and takes measures to control them, the service told Izvestia. Now the regional authorities are actively concluding voluntary agreements with businesses to stabilize the cost of goods, they added. The FAS also recommends that retail chains and suppliers actively conclude long-term contracts with pre-agreed volumes, prices and mutual responsibility for meeting the conditions.
The service noted that the CMACP report had not been submitted to it for consideration, however, the FAS takes into account the opinion of the expert community.
For effective price fixing, such agreements must contain clear terms and responsibilities of the parties, said Vladimir Chernov, analyst at Freedom Finance Global. In his opinion, it is also important to provide compensation for producers in case of a decrease in profits, for example, tax breaks or subsidies.
In addition, it is necessary to maintain mandatory reporting and monitoring of the implementation of agreements. Government involvement in logistics and warehousing is also necessary to ensure an even distribution of goods, as well as antimonopoly regulation to prevent artificially high prices from the dominant players, Vladimir Chernov added.
Participation in such agreements should be voluntary — coercion can lead to a decrease in business profitability, especially for small companies, says Svetlana Ilyashenko, associate professor of the Basic Department of Trade Policy at Plekhanov Russian University of Economics. And compensation is really needed: if the costs of producers exceed the agreed prices, production will become economically unprofitable. As a result, the supply will decrease, she added.
— Price fixing involves a number of risks. Among them are shortages of goods, a decrease in the quality and diversity of products, the growth of the shadow market, difficulties with planning for manufacturers, as well as possible corruption in the distribution of compensation, if any," warned Vladimir Eremkin, senior researcher at the IPEI Structural Research Laboratory of the Presidential Academy.
According to the Central Bank, food inflation reached almost 12% in June. Izvestia appealed to the regulator, the Ministry of Energy and the Ministry of Industry and Trade with a request to evaluate the proposals of the Center for Macroeconomic Analysis and Short-term Forecasting.
What will help reduce inflation in Russia
A reduction in inflation is also possible due to additional measures listed in the CIMAC report. Among them:
— accelerated import of goods from friendly countries;
— direct deliveries of farmers' products to large cities, bypassing trade intermediaries;
— reduction of duties on goods, which are now imported less, and raw materials for their production;
— limitation of consumer loans — through a rigorous risk assessment when issuing loans;
— stimulating the "supply side economy" by lowering interest rates and introducing an investment income tax deduction;
— limiting the growth of tariffs of natural monopolies by the inflation rate.
The proposed measures may affect prices, but their effect will be limited and uneven, said Vladimir Eremkin from the Presidential Academy. According to him, the strength of the initiatives is the focus on the key causes of commodity inflation: supply shortages (imports, duties) and excessive demand (restraining lending).
These measures can smooth out price spikes, especially for socially important goods, but are unlikely to change general trends, the expert stressed. Currently, services, gasoline, and tariff indexation of natural monopolies remain the key drivers of growth. Without a tight monetary policy and control of budget expenditures, it will not be possible to achieve a steady reduction in inflation, he believes.
Among the proposals that may work in the near future are price fixing for basic goods, accelerated imports from friendly countries, lower duties on scarce products and restrictions on consumer loans, listed Vladimir Chernov from Freedom Finance Global. In the next one to three years, stimulating investments, developing direct supplies from farmers and reducing the non-tax burden on small businesses will help, he added.
"However, without solving the problem of monopolization, especially in the agricultural sector and logistics, prices are unlikely to decrease significantly even with falling costs: the so—called ratchet effect will work (when the cost of raw materials falls, but products do not become cheaper)," says Svetlana Ilyashenko from the Russian University of Economics.
How prices will rise in 2025
The key periods for inflation will be the third and fourth quarters, when several risks may converge at once, according to the CIMAC report. First, the effect of savings may weaken: people will start spending their savings, which will accelerate demand. Secondly, a possible reversal of the ruble exchange rate is possible — now it is over-anchored, while the fundamentally balanced level is estimated at 100 rubles per dollar, the author of the work emphasized.
Under an optimistic scenario, inflation may slow down in the second half of the year due to a seasonal reduction in the cost of fruit and vegetable products, a high level of inflation (20%) and the delayed effect of price agreements, says Svetlana Ilyashenko from the Russian University of Economics. However, analysts predict a reduction in the Central Bank's rate to 18-19% at the regulator's meeting on July 25.
According to experts interviewed by Izvestia, inflation will reach 7-8% by the end of the year. At the same time, the application of the measures proposed by the CMACP may slow down price growth by 2-3 percentage points, said Andrei Barkhota, PhD in Economics.
If all measures are implemented simultaneously and effectively, inflation could slow to 5-6% by the end of 2025, almost to the Central Bank's target level (4%), agreed Vladimir Chernov of Freedom Finance Global. However, according to him, this is possible only with a stable ruble, moderate external inflation and the absence of new shocks.
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