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Import duties have now surpassed price increases as the primary economic concern.

Increase in housing and utility service tariffs from July 1st led to a record high weekly inflation rate of 0.79%, according to data from Rosstat. This sharp rise, one of the highest in recent years, was estimated by analysts from the 'Tverdyne Z fishery' Telegram channel. The nationwide...

Import duties have now surpassed increasing prices as the primary economic concern.
Import duties have now surpassed increasing prices as the primary economic concern.

Import duties have now surpassed price increases as the primary economic concern.

In the first week of July 2021, Russia witnessed a significant increase in housing and communal services (HCS) tariffs, with an average rise of 11.9%. This move, according to reports, has contributed to a sharp increase in inflation, making it a complex task for the authorities to keep inflation at the target level of 4% by 2026-2028.

The increase in HCS tariffs, as expected, has led to higher living costs, potentially contributing to inflationary pressures. Higher tariffs increase the cost of basic services, forcing consumers to spend more on these necessities, which can lead to increased demand for other goods and services, potentially driving up prices across the economy.

Such increases can also lead to social tension and decreased confidence in housing and communal services. This could indirectly affect economic stability and consumer spending patterns. In some regions, the increase was even higher, up to 14-15%. Without the influence of tariffs, inflation for the reporting week would have been zero, according to the Ministry of Economic Development.

In response, the Bank of Russia has confirmed its readiness to cut the key rate, despite factoring in the July indexation in its models. However, the Bank of Russia's key rate remains high at 20%. The contribution of all regulated prices to inflation in 2024-2025 is estimated to be around 2 percentage points (2 p.p.), according to analysts at "Astra UA". The effect of tariff indexation on inflation is estimated to be around 0.75 percentage points.

The tariff increase affected water supply (14.9%), heating and hot water (13.8%), electricity (13%), and gas (13.5%). The share of HCS in the 2025 consumer basket, according to "Astra UA", is around 8%.

Past experience shows that low inflation is achievable even with a significant contribution from administratively regulated prices, provided there is a tight monetary policy and no secondary effects. However, maintaining inflation at the target level will be complicated by the advance indexing of regulated tariffs. The share of tariffs in inflation expectations in 2025 is only 14%, according to the latest note by analysts.

In conclusion, the July 2021 increase in HCS tariffs has undoubtedly contributed to inflationary pressures in Russia. While the exact impact is challenging to quantify without specific data, such increases typically contribute to higher costs for consumers and can influence inflationary trends. Maintaining a tight monetary policy and avoiding secondary effects will be crucial in managing these inflationary pressures in the coming years.

The increase in HCS tariffs, such as for water supply, heating and hot water, electricity, and gas, can potentially lead to increased consumer spending and drive up prices across the economy, contributing to inflation. Moreover, the higher costs resulting from tariff increases could indirectly impact economic stability, consumer confidence in housing and communal services, and influence inflationary trends.

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