Valery Mironov: “It is necessary to support those who have no money savings”

The Bank of Russia still adheres to its optimistic forecast that inflation will slow down by the end of 2022 and will be at the level of 4-4.5%. This is stated in the information and analytical commentary "Dynamics of consumer prices." At the same time, the observed rates of price growth still continue to remain at last year's anti-record - 8.6%. The Kremlin considers the level of inflation to be unacceptable and is trying to alleviate the situation, in particular, of pensioners by appropriate indexation. Finance Minister Anton Siluanov has repeatedly reported that the peak of inflation in Russia has already been passed, but it has not yet been possible to bring down the growth of price tags, especially for food products. Should Russians prepare to follow the covid waves as well as new inflationary waves, or will life finally start to get better? Novye Izvestia talked about this with Valery Mironov, Deputy Director of the Development Center Institute of the Higher School of Economics.

Sergey Putilov

- Valery Viktorovich, what is the reason for the sharp rise in prices for literally everything, which has become such an unpleasant surprise for Russians in the already difficult years of the pandemic?

- The growth of inflation is a global problem, it is connected with the epidemic problem of disruption of economic ties common to the world and Russia. The supply of production began to be limited, the chains of previous supplies began to break due to the pandemic. Coinciding with this was the problem of crop failures in some countries. There were lockdowns, restrictions on the import of goods, even parcels were checked. The usual chains of production and logistics were disrupted. Due to the lack of supplies, there was an increase in prices on world markets. In Russia, respectively, too. A lot of goods used to be sent to foreign markets, and then the supply was broken. This was accompanied by pumping money into the market by governments to help the population. It is also important that there was a large tourism sector that suffered a lot of damage. Those huge amounts of money that people used to export abroad went inside the country.

- The authorities promised to reduce price growth to 4% by the end of the year. Will they succeed?

- Now the goal, the target that was set by the Central Bank, the forecasts that were made, they really laid 4% at the end of this year. But the fact is that inflation expectations of the population also influence inflation. People believe in high inflation and this is passed on to manufacturers. In this case, it becomes more difficult to bring down inflation, this takes time. Inflation becomes a self-sustaining mechanism. A lot depends on psychology. That is, by the end of the year, we are unlikely to bring inflation down to 4%. It may be possible to return to 6-6.5% on average. We see that prices for certain foodstuffs are growing by 10-15%, for building materials, for materials for repairs by 20%, cars are becoming more expensive. The world's leading regulator, the Fed, in particular, has already stepped up its inflation pessimism. Incidentally, they do not consider the return of inflation to be a long-term phenomenon. But as for the Central Bank, I think they will reconsider their goal of 4%.

- Can the measures taken by the Central Bank, in particular the increase in the rate, stop the acceleration of prices?

- Inflation is more related to production than to demand. After all, prices rise when there is not enough produced goods. And in order to produce them, loans are needed, and when the interest rate rises, the possibility of increasing the pace of production decreases. It is necessary to find some optimal variant so as not to absolutize the fight against inflation on the basis of the fight against inflation in demand.

- Now there is an indexation of pensions, salaries to state employees increase. Is this enough to compensate for the observed increase in prices, in particular for products? Is the state making enough efforts to support the population in the current difficult situation?

- I think that it will not be possible to fully compensate. And if you compensate too much, you can cause a new rise in prices. And again we have to compensate, there will be a kind of inflationary spiral. We need to help only those who could not compensate for the rise in food prices with savings, who do not have bank accounts and savings. And this is a significant part of the population. It is necessary that people with low incomes do not reduce the level of consumption, because this is necessary physiologically, to maintain health. After all, it is vitally important for each person to receive the necessary amount of proteins, vitamins, and not switch to potatoes and bread, trying to reduce the cost of their consumer basket. You need to support those who do not have savings. You don't have to support everyone. Those who have savings can live on them for some time, withdraw from their accounts and compensate for the observed price increase. If one of them eats less, then maybe it's even good, I mean from the rich.

- According to polls, an increasing number of Russians are starting to save on literally everything, and few believe that the situation with personal income will noticeably improve even after the end of the pandemic. What is the reason for such consumer pessimism?

- People began to save, because food prices have risen sharply, and the incomes of the poor are mainly used for food. There is a big stratification of income. People don't expect things to get better after the pandemic because they fixate on current issues. In addition, there is a lot of uncertainty - prices are obviously rising, and salaries do not give such an increase to compensate for the increase in prices. And people therefore transfer problems to the future. It is necessary to reverse this shock and stimulate the population in material and moral terms. It is necessary to solve geopolitical problems and necessarily support the poor. The poor buy only the bare necessities, and the budget spending on them is justified, since this money goes into our own economy. They don't travel abroad, they don't buy expensive iPhones. That is, from investments in the poor, the return will be greater and this will remove the lack of domestic demand. And this is an important recipe for overcoming the crisis. It is not only noble, but above all beneficial to help the poor, as it stimulates domestic demand and allows the economy to grow. There is also import substitution, as the poor are more likely to buy domestic products because it is cheaper. The authorities are now doing clearly not enough to support the poor, more efforts are needed. For example, payments to children amounted to 200 billion rubles, but the budget is quite capable of giving two to three times more. Surplus revenues to the budget are disproportionately greater than what the state allocates to support the poor, so such targeted assistance certainly requires a significant increase.

- Real incomes of the population have been declining for the eighth year in a row, is it possible to hope that this year the situation will finally change for the better?

- In theory, the situation in our economy is good. Unless you pay attention to increased inflation and stock markets, which recently collapsed. There are really big losses, in particular for investors. But overall the economy is in good shape. Profits are rising, the country's balance of payments is increasing. Prices are rising for all major items of Russian exports. The Ministry of Economic Development expects economic growth of 3%, our polls speak of 2.5%. Salaries can rise accordingly. But even in this scenario, we are likely to get zero growth in real incomes. Although pensioners are nominally indexed by 8.5% in accordance with the presidential decree, and salaries will go up even by 6%, with the current inflation, we will see zero income growth. Otherwise, we may get too much growth in wages and pensions relative to productivity growth, which will only fuel inflation. For now, we need to start the flywheel of production so that economic growth reaches at least 4%. Only then will we be able to ensure a positive shift in the well-being of the population. Nevertheless, if it is possible to reduce inflation to at least 4%, then pensioners will still get real growth with the mortgaged indexation. But pensioners are only part of the population, there are 20 million of them, and the working population - 70 million. That is, on average, if there is an increase in real incomes in the whole country, it will not exceed 1.5%.

- Against the backdrop of rising prices, it is necessary to strengthen measures to support low-income citizens from the state. In this regard, the discussion about the introduction of food cards has recently revived, which Russians remember only from the times of the "dashing nineties", and people of the older generation in this regard will remember the years of the Great Patriotic War. Can things really go as far as the introduction of ration cards in Russia, won't people find this humiliating?

- In conditions of vigorous growth in food prices, it is the low-income strata of the population that suffer first of all, that is, people who do not even have enough for food. When children are malnourished, citizens take into account every penny, it is unlikely that anyone will consider this humiliating. Now there seems to be no crisis, so many believe that it would be premature to introduce cards. Allegedly, you should not do this, as this will cause citizens to associate with difficult times. But I do not see anything negative in this. The only thing, from a practical point of view, it would be better if these were not cards, but non-cash forms like bonuses that can be credited to iPhones and purchased in a store. This tool is common even in developed countries. In the United States, even during the Great Depression, special vouchers were used. Moreover, it would be useful to expand this practice not only to food, but also to other essentials, in particular, to medicines. But we must ensure that it is only for the poor. Because if those who already have a good pension also become recipients, then such assistance will be spread out and become less effective.

- Will such a burden become unbearable for the Russian budget?

This is a positive measure to stimulate domestic producers and domestic demand. Because when demand suffers, it holds back the growth of the economy. Is there money in the budget for this? It all depends on the amount of aid provided. If even 200 billion rubles are allocated for these purposes, then, for comparison, revenues to the budget due to rising prices for gas, oil, and exports of raw materials amount to trillions. In 2021, we had a 4.3% GDP growth, and now experts estimate that this will only be 2%, which is even less than the world average growth. Such injections into the economy are now extremely relevant. Injections into the economy were made actively during the Olympics in Sochi, roads and bridges were built, but now they have begun to fade. So such investments would be useful, especially since the private sector is now reluctant to invest. Government contracts are not always effective due to corruption, but here, in the case of households, everything would be more transparent. Corruption in the state machine is bad? — That all money is withdrawn abroad. And then virtually every penny will go into our own economy.

- How can Western sanctions affect the Russian economy? In particular, are there talks about a ban on dollars for Russian banks, are they threatening to cut Russia off from SWIFT?

- Disconnecting Russia from SWIFT is hardly possible. Because all the financiers are already saying that then our counterparties will not be able to pay us for oil and gas. And the Europeans will not be able to fully compensate for the lack of supplies from other sources, in particular, supplies of liquefied gas. Therefore, SWIFT is unlikely to be disabled. I think such a measure would mean the destruction of the world circulatory system - the financial one. The mutual damage will be serious enough, and the global economic situation is not in a position to allow creating situations that could turn into a global financial crisis. All the world recessions that were after the Second World War, including the recession of 2008, they all accompany the global financial crisis. Now we have extinguished the recession of the world economy, the crisis has not happened, but it can still return. I don't think anyone wants to have a fifth global financial crisis.