Bank of Russia Sees Inflation Peaking in April 2025 at No More Than 9.8% This Year

Moscow, 24 December 2024. Annual inflation in Russia will most likely reach its peak in April 2025, after which the indicator will decline actively, Andrey Gangan (Андрей Ганган), director of the monetary policy department of the Bank of Russia, said in an interview published by BFM.ru. By the end of 2024, price growth will amount to no more than 9.8%, he estimated. In October, the central bank had expected full-year inflation of 8-8.5%, but over the last two months prices continued to rise, and experts were not surprised by the updated forecast. For the same reason, a key rate cut in February should not be expected for now.

Base effects and the 'long tail' of 2024

Sofya Donets (Софья Донец), chief economist at T-Investitsii (Т-Инвестиции), noted that annual inflation is approaching the 9.8% mark on the current horizon, with details to be refined by how the New Year table turns out. Her assessment of the near-term dynamics:

• technical increases in annual inflation are inevitable at the start of the year, and the first quarter of 2025 will most likely show about 10%;
• the base effect will play a role, because the 'long tail' of inflation spans a full twelve months;
• current inflation — the pace of further consumer price growth — will probably begin to slow quite soon, with a noticeable deceleration expected in the spring months;
• stabilisation on the demand side will play an important role;
• any new exchange-rate shocks would depend on the commodity situation and geopolitics;
• the large and unexpected price surge at the end of 2024 may mean that most of the price growth is left behind in 2024.

The central bank itself warned that, with a high degree of probability, annual inflation will keep rising in the first quarter of 2025 — up to the April peak.

Fuel-price fears and the Transneft tariff

Some media outlets reported that gasoline could become significantly more expensive in 2025 — by 10-20%. The Federal Antimonopoly Service (FAS) responded that it observes nothing of the kind. According to Rosstat data, gasoline in 2024 rose in price by 10.7% against the previous December, and diesel fuel became 7.4% more expensive — that is, within the bounds of overall inflation.

The trigger for the loud statements was the rise in tariffs at Transneft (Транснефть), the monopoly operator of Russia's trunk oil pipelines. In late November, the government decided to raise the company's profit tax to 40% for the next five years. Because of this, Transneft asked for an increase in its oil-pumping tariff, and the FAS approved the proposal: from January, the company's services will be indexed by 5.8%.

Dmitry Gusev (Дмитрий Гусев), deputy chairman of the supervisory board of the Nadyozhny Partner (Надежный партнер) association, said that no serious gasoline price increase follows from this. The 'hysteria', he noted, began with statements by certain experts who received FAS warnings about the inadmissibility of pronouncements on price growth, while retail fuel prices are moving 'in an arc exactly along inflation' over the year. Tariffs are not 100% of the cost of gasoline, and taxes are not 100% either, so Transneft is certainly not to blame for fuel prices, Gusev argued.

Despite the higher taxes and tariffs, Transneft will not cut dividends below 50% of net profit, Deputy Prime Minister Alexander Novak (Александр Новак) said; the question was not discussed in the government. The updated inflation trajectory leaves no room for a February rate cut, and monetary conditions in Russia will remain tight at least until the spring slowdown in price growth materialises.

Source: BFM.ru, 24 December 2024.