Seasonal discount: why deflation in Russia will not stop
Russia has been experiencing deflation for the past five weeks in a row. This time, the price reduction was 0.05%. The situation for the end of summer is generally normal, but the duration of the fall in consumer prices this time is surprising to experts, although it is not yet a record, especially since this is happening against the background of rising inflation expectations. Nevertheless, it is clearly too early to talk about "anchored" deflation, and the process is likely to unfold. About how much more prices may fall and why this is happening, see the Izvestia article.
The power is in vegetables
August or September deflation is the norm in Russia. The harvest reduces the prices of fruit and vegetable products, and also pulls other food along with it. In the past, periods when weekly price declines were not recorded were rare. Deflationary processes usually last for a month. This time, prices have been falling for five weeks. This is a lot, but it is still far from the record of 2011, when deflation was recorded for three months in a row.
Following the results of the week from August 12 to August 18, prices in Russia fell by an average of 0.05%. As expected, vegetables, in particular potatoes and tomatoes, fell the most. Almost all food fell in price, while prices for non-food products showed a "sideways" movement: something was getting more expensive, something was getting cheaper. A similar situation was observed in the service sector. That is, even excluding fruits and vegetables, the price increase was very modest, almost within the statistical margin of error.
All this hints that deflation may linger this year, as it is driven not only by seasonal factors, but also by a general slowdown in price growth under pressure from the monetary policy of the Bank of Russia. Recall that the real key rate (nominal rate minus inflation) is currently around 9%. This is a huge figure, one of the highest in the world. Such a gap puts a lot of pressure on the economy, provoking a decrease in consumer and credit activity and squeezing demand.
Expectations don't matter
Interestingly, however, inflation expectations rose from 13% to 13.5% against the background of lower prices. Many analysts believe that it is expectations that determine long-term inflation trends. However, there are suggestions that rising utility tariffs and rising gasoline prices play a crucial role in these figures. However, these factors have already been "played out" in many ways.
According to Evgeny Goryunov, head of the Monetary Policy Laboratory at the Gaidar Institute, inflation expectations are not a very informative indicator in principle.
— They mostly reflect the current price dynamics — people simply extrapolate into the future what they see today. They think that if prices are rising now, then they will continue to rise in the future. Utility tariffs were increased in July, and everyone noticed it. The rise in inflation expectations is an echo of tariff increases, and nothing more, the expert believes.
As for the deflationary trend, we need to talk about it with caution. For Russia, long—term deflation is an extremely atypical phenomenon. Therefore, the main question is how long this process will last.
"Since the beginning of August, the consumer price index has decreased by 0.19%," explains Olga Belenkaya, Head of the Macroeconomic Analysis Department at Finam. — That is, by the end of August, we are likely to see deflation in the amount of 0.2–0.3%. Seasonal price declines may also affect part of September, but starting in the fall, inflation will return to positive monthly rates.
According to her, in general, the slowdown in inflation since the beginning of the year is based on cooling demand due to the tight monetary policy of the Bank of Russia, as well as a strong strengthening of the ruble, which is also largely the effect of the policy of high interest rates.
— Since June, the Central Bank has started reducing the key rate, but still in real terms, taking into account the slowed inflation, it remains very high. Economic activity is slowing down, as evidenced, in particular, by Rosstat's preliminary estimate of 1.1% GDP growth in the second quarter of 2025, which is significantly lower than the Bank of Russia's July estimate (1.8%), and weakening demand contributes to a more active slowdown in inflation," concluded Olga Belenkaya.
According to Evgeny Goryunov, there is really no deflationary trend and it's strictly a matter of seasonality.
— Already in early autumn, this process will turn in the usual direction — towards higher prices. To assess price trends, you need to look at the inflation rate, which is cleared of the seasonal factor. So, if we adjust for seasonality, it turns out that our inflation rate is about 3-4%, which is not at all like deflation," he points out.
As Natalia Pyryeva, a leading analyst at Cifra Broker, noted, in many ways the disinflationary trend is shaping a more pronounced than usual decline in prices for fruit and vegetable products, while the picture remains unstable in terms of services.
— Given the lack of clarity about the sustainability of the disinflationary process, inflationary expectations are growing, as pro-inflationary risks associated with the budget, the stability of the ruble, the labor market, and so on persist. The inflation picture will become clearer in the autumn. In general, we do not expect the disinflationary trend, which is currently observed, to continue in the autumn," the expert notes.
There is no weakness
It is premature to talk about the weakness of the economy, Natalia Pyrieva believes.
"The economy is cooling, and at the moment the indicator has not fallen into the negative zone, although we do not exclude the possibility that GDP may decline on a monthly basis, but this will also not be a sign of economic distress," she points out.
In turn, Evgeny Goryunov does not believe that the current state of affairs in the economy can be called weakness in principle.
— The level of demand is not weak, unemployment is low, and capacity utilization is high. The volume of loans issued is growing. The rate of output growth continues to slow down, and there are some concerns about the state of the budget deficit at the end of the year, but I would not call this a state of extreme weakness," the expert concludes.
The overall effect on inflation will depend, among other things, on external factors, Olga Belenkaya notes.
— The disinflationary effect of the strengthening of the ruble has been ending since the beginning of the year, and the expected reversal to a weakening of the currency by the end of the year may lead to higher values of current inflation, primarily in non-food products. In addition, the risks are related to geopolitical factors, although recently there have been some encouraging developments regarding the possibility of resolving the Ukrainian crisis," the Izvestia interlocutor concluded.
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