The VEB Institute for Research and Expertise recently published its latest study, “World Economy and Markets,” covering the period from December 8 to December 14, 2023. The key findings of the study reveal a noteworthy decrease in the inflation rate in Russia, despite a simultaneous increase in consumer spending.
In December, Russia experienced a significant drop in the average daily price increase, decreasing to 0.025% compared to November’s 0.037%. Remarkably, this occurred alongside a boost in tax revenues, contributing to a reduction in the accumulated budget deficit to less than 0.9 trillion rubles over 11 months.
The year-on-year comparison shows a decline in inflation to 7.0%, down from 7.5% at the end of November, primarily attributed to the high base from December of the previous year. Notably, certain food products witnessed a decrease in prices, including pork, chicken, vegetable fats, sugar, and cereals. However, prices for beef, fish, milk, eggs, bread and flour, and fruits and vegetables experienced an increase. Simultaneously, the prices of services continued to rise at a notable rate.
Real consumer spending growth accelerated to 6.9% year-on-year over the past week, a notable increase from the previous week’s 6.2%. Expenditure categories such as flowers and gifts, jewelry, auto parts, parking, and fuel saw the most substantial increases, reflecting changing consumer behaviors and preferences.
In terms of macroeconomic indicators, the report from Ministry of Finanace Russia highlights that federal budget revenues in November remained at a record high for the fourth consecutive month. Both oil and gas revenues, as well as non-oil and gas revenues, witnessed growth. The increase in non-oil and gas revenues can be attributed, in part, to the payment of a one-time tax on excess income.
According to the law, individuals must pay a tax on excess income, representing the positive difference between the average profit for 2021–2022 and profits for 2018–2019, by January 28, 2024, at a rate of 10%. Notably, those who pay this tax between October 1 and November 30, 2023, receive a 50% tax deduction.
Despite increased spending in November, the budget maintained a surplus over the last four months, resulting in the reduction of the accumulated deficit to less than 0.9 trillion rubles. The planned budget deficit for the current year is 2.9 trillion rubles, equivalent to 2% of GDP.
The report also touches on global economic trends, noting a 0.1% increase in consumer prices in the United States in November. This unexpected rise, particularly in prices for used cars and certain services, led to an overall annual inflation rate of 3.1%, prompting the US Federal Reserve to hold interest rates steady and even hint at a possible reduction in the spring.
Meanwhile, in China, both consumer and producer prices experienced a decline, potentially indicating weakness in domestic demand. The Consumer Price Index (CPI) fell by 0.5% in November, and producer prices (PPI) decreased by 0.3% month-on-month, breaking a three-month growth trend.
In Europe, the study provides insights into October’s industrial production figures, revealing a 0.7% monthly decline in the Eurozone. This contraction included decreases in the production of capital goods and intermediate and nondurable consumer goods. However, the annual decline in European industrial production slowed from 6.8% in September to 6.6% in October.
This comprehensive analysis underscores the interconnected nature of global economies and the need for a nuanced understanding of economic trends. The impact of Russia’s decreasing inflation rate, alongside developments in the United States, China, and Europe, paints a dynamic picture of the current state of the world economy.
