Mikaelyan: It is normal for Russia to have 6-7-percent inflation, but at 4-5-percent growth

The Central Bank of the Russian Federation announced public discussions on the issue of the optimal inflation rate in Russia and decided to ask Russian banks about it. And Invest-Foresight, in turn, asked opinion on this issue of Aghvan Mikaelyan, member of the board of directors of the auditor consulting network FinExpertiza.

Agvan Mikaelyan, Member of the Board of Directors of FinExpertiza audit and consulting network. Sergey Subbotin / RIA Novosti

– Do you think there is any concept of optimal inflation? One percent is small, ten percent, let’s say, is too much. Too much for what?

– Did you know that besides inflation there is a reverse process that is called deflation? Is it good, for example, when there is deflation, when everything is getting cheaper, or is it bad? Deflation is actually a terrible thing.

– Why so?

– Because inflation in itself makes market participants move. If something is getting cheaper, as in the case of deflation, you should think how to maintain the level of production. And if something rises in price, then you need to think how to produce more. And so the absence of inflation is more common to lead to very severe stagnation. Yes, not at all necessarily further degradation will follow, but still…

Japan is in a similar situation today. After rapid growth in the 70s and 80s of the last century for almost 20 years Japan had not great successes. Yes, they are sitting on a kind of money bag, they have growth exceptionally low, and this is how they exist.

Therefore, inflation has a positive role in terms of motivation. And even in economics, there is such a thing as inflationary growth. For each economy it is, of course, special, since it must be combined in a certain way with the growth of the economy itself.

The most striking example of modernity is China. The Celestial Empire had 10-12-percent inflation, but at the same time had 8-12 percent economic growth.

Of course, it cannot be said that this is always the case, always such a tough addiction, but this is an illustration! If there is 8% growth, but you can be completely calm to have 12 percent inflation, that would only contribute to that growth.

If you have zero growth, then any inflation worsens your condition, because the incentive appears, but it becomes much more complicated to produce more, to sell more.

– And what is the optimal rate then, given the small growth?

– The fact that our growth is “near zero” is not true, since we have another parameter that affects the situation greatly. Since we live in an economic zone with a not very hard currency, we have the main mechanism – export of capital abroad. And if we did not have this inflationary outflow, we could quite calmly have a 6-7 percent economic domestic growth, since we have a completely huge lack of consumption domestically. Yes, there would be inflation, but wages would also grow at a pace either catching up, or somewhere ahead, depending on the industry.

Today, when our capital runs away and is not reinvested back, it is a little different. Moreover, before, of course, in this aspect everything was more understandable for this capital. And now the situation has turned in such a way that money within Russia becomes safer to exist than abroad. And the Western security myth in terms of capital flight from Russia is destroyed by the West itself.

In the meantime, with today’s growth, inflation must be restrained, since with this capital flight, unwillingness to invest it by the Central Bank, from the point of view of pure monetarism, did exactly the right thing trying to contain this inflation as much as possible.

– The central bank, by the way, put the question on the public discussion, whether a reduction in the key inflation measure from 4% to 2% makes sense. At your opinion, does it make sense?

– No. I think it doesn’t make sense today. We will lose the last boost to economic growth. With all our existing problems, low inflation will further add to the problems.

You see, inflation itself, I repeat again, cannot be considered in isolation from everything else. If at the same time the Central Bank will print money and supply economy with this money, then you can see, and this is already observed in part, that our economy with its money survives perfectly even if the iron curtain is lowered on the other side. If this curtain raises there again, then the money will run there again.

So you need to maneuver in this stormy sea very, very deftly, since everything is highly interconnected.

– And then, according to the Central Bank, the ideal inflation target is 1%?

– The ideal 1% inflation rate is good. But under one condition: stable annual growth of the economy by 4%.

– And a question from the point of view of education. Rosstat, reporting on inflation, discloses such figures that are usually instantly meet with criticism by the population who believe that inflation is actually much greater. Why is this happening and is it worth believing such figures at all?

– Inflation can be calculated both on average in the economy and on specific products, goods, food groups, by household. Naturally, there are goods that we use every day, it’s their price that we fix most often.

And the figures that the government notes are not the same that we fix and feel, since you should take into account, figuratively speaking, “a million services”/ And there is a huge amount of different parameters taken into account in the general inflation indicator, which in a year can fall in price. But this is not interesting to anyone! But these numbers still have an impact for the total inflation indicator! The same, let’s say, with electricity, which is becoming more expensive for the consumer, but at the same time at the wholesale it may become cheaper in the market.

Those inflation ratios that are considered globally for the whole economies, are completely different. The weight of the coefficients is also important.

– How important is it?

– Very important! For example, we say: is this really inflation of 6% when products have risen in price by 18%? And the answer is simple. If the share of products in the entire economy from the point of view of the impact on total inflation, is, say, 10%, then it turns out that 10% of the economy has risen in price by 18%. And the rest of it, for example, for simplicity, went up by 0.9%. Then you end up getting rude speaking, 5.6%. And it turns out that for someone inflation is 18%, and for someone it is 5.6%.

Domestic inflation, consumer inflation is almost always higher than official one. There are situations when it happens wrong, when it can be product deflation, which, by the way, happens in seasonal terms every year with fresh vegetables and fruits, especially perishable ones. But in general, this rule is indisputable!

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