Bank interest rate without adjustment for inflation. The relationship between the refinancing rate, inflation and interest on bank deposits

Central Bank of the Russian Federation (Bank of Russia)
Press service

107016, Moscow, st. Neglinnaya, 12

The Bank of Russia decided to reduce the key rate by 25 bp, to 6.00% per annum

On February 7, 2020, the Board of Directors of the Bank of Russia decided to reduce by 25 bp, up to 6.00% per annum. Inflation is slowing faster than predicted. Inflation expectations of the population and price expectations of enterprises generally remain stable. The growth rate of the Russian economy increased in the second half of 2019. Risks of a significant slowdown in the global economy remain. In the short term, disinflationary risks still prevail over proinflationary ones. Under these conditions, taking into account the current monetary policy, annual inflation will be 3.5–4.0% at the end of 2020 and will remain close to 4% in the future.

If the situation develops in accordance with the baseline forecast, the Bank of Russia allows for the possibility of further reducing the key rate at the next meetings. The Bank of Russia will make decisions on the key rate taking into account the actual and expected dynamics of inflation relative to the target, economic development over the forecast horizon, as well as assessing risks from internal and external conditions and the reaction of financial markets to them.

Inflation dynamics. Inflation is slowing faster than predicted. The annual growth rate of consumer prices in January decreased to 2.4% (from 3.0% in December 2019) both due to the exclusion of the effect of the VAT increase and due to the moderate rate of price growth in January. Annual core inflation in January fell to 2.7% after 3.1% in December. Inflation indicators, reflecting the most stable processes of price dynamics, according to Bank of Russia estimates, are close to or below 3%.

In January, disinflationary factors continued to have a significant impact on inflation. The annual growth rate of prices for food and non-food products continued to decline. The expansion of supply in individual food markets contributes to maintaining low monthly (except for seasonality) and annual growth rates in food prices. The strengthening of the ruble in 2019, along with slowing inflation in trading partner countries, limits the rise in prices for imported goods. Inflation remains influenced by subdued demand, including external demand.

In January, the population's inflation expectations decreased slightly, while remaining at an elevated level. Price expectations of enterprises are stable. The slowdown in annual inflation creates conditions for a further reduction in inflation expectations of the population and business.

According to the forecast of the Bank of Russia, taking into account the current monetary policy, annual inflation will be 3.5–4.0% at the end of 2020 and will remain close to 4% in the future.

Monetary conditions. Monetary conditions continued to soften. OFZ yields and deposit and lending rates continued to decline. The decisions taken by the Bank of Russia to reduce the key rate and the decline in OFZ yields create conditions for a further reduction in deposit and lending rates, which will support the growth of corporate and mortgage lending. At the same time, the growth of consumer lending is gradually slowing down, largely due to the tightening of non-price conditions under the influence of macroprudential measures of the Bank of Russia.

The Bank of Russia will assess the impact of decisions already made on the key rate on monetary conditions and inflation dynamics.

Economic activity. According to Rosstat’s first estimate, GDP growth in 2019 was 1.3%, which corresponds to the upper limit of the Bank of Russia’s forecast of 0.8–1.3%. The dynamics of final consumption expenditures made the main contribution to GDP growth in 2019. In turn, the decline in the physical volume of exports had a significant negative impact on GDP dynamics.

In the fourth quarter, economic activity indicators generally continued to improve. Thus, investment activity was supported at the end of last year by an accelerated increase in capital expenditures of the budget, including in connection with the implementation of national projects. The annual growth in retail trade and industrial production turnover continued. However, leading indicators continue to point to continued weak business sentiment in the industry, especially in terms of export orders. The decline in external demand for Russian export goods continues to have a restraining effect on the dynamics of economic activity in the context of slowing global economic growth.

The labor market does not create excessive inflationary pressure. Unemployment near historically low levels is not due to an expansion in labor demand, but to a simultaneous decline in the number of employed people and the working-age population.

The Bank of Russia kept the GDP growth forecast for 2020–2022 unchanged. The GDP growth rate will gradually increase from 1.5–2.0% in 2020 to 2–3% in 2022. This is possible as the Government implements a set of measures to overcome structural limitations, including the implementation of national projects. At the same time, the reduced growth rates of the global economy expected over the forecast horizon will continue to have a restraining effect on the growth of the Russian economy.

Inflation risks. In the short term, disinflationary risks still prevail over proinflationary ones. This is primarily due to the state of domestic and external demand. Disinflationary risks remain from the dynamics of prices for certain food products, including due to increased supply. The strengthening of the ruble that occurred in 2019 may continue to influence price growth. The response of both consumer and private sector investment demand to easing monetary conditions and fiscal stimulus may be limited by subdued consumer and business sentiment.

At the same time, it is necessary to take into account the effect of pro-inflationary factors. The risks of a reversal of trends in the food market cannot be ruled out, given that the ratio of temporary and permanent factors in this market is difficult to assess. Along with this, the implemented easing of monetary policy may have a more significant upward impact on inflation than the Bank of Russia estimates.

Risks associated with trade disputes have decreased somewhat. However, there remains a risk of a further slowdown in global economic growth, including under the influence of geopolitical factors and increased volatility in global commodity and financial markets, which may affect exchange rate and inflation expectations. An additional factor of uncertainty for the coming quarters is the situation with coronavirus.

According to Bank of Russia estimates, the implementation of additional social measures announced in January will not have a significant pro-inflationary impact. At the same time, during 2020, inflation dynamics will be influenced by the budget expenditure execution schedule.

Over a longer horizon, pro-inflationary risks from a number of internal conditions remain. Elevated and unanchored inflation expectations remain a significant risk. Medium-term inflation dynamics may also be influenced by fiscal policy parameters, including decisions to invest the liquid portion of the National Welfare Fund above the threshold level of 7% of GDP.

The Bank of Russia's assessment of risks associated with wage dynamics and possible changes in consumer behavior has not changed significantly. These risks remain moderate.

Following the meeting of the Board of Directors on the key rate on February 7, 2020, the Bank of Russia published a medium-term forecast.

The next meeting of the Board of Directors of the Bank of Russia, at which the issue of the level of the key rate will be considered, is scheduled for March 20, 2020. The time for publishing a press release on the decision of the Board of Directors of the Bank of Russia is 13:30 Moscow time.

The refinancing rate is one of the most important instruments of monetary policy. It allows the Central Bank to indirectly influence the inflation rate by changing the money supply by regulating the size of the monetary base. If the Central Bank increases the refinancing rate, commercial banks will strive to compensate for the losses caused by its growth (increase in the cost of credit) by increasing rates on loans provided to borrowers, i.e. changes in the refinancing rate directly affect changes in rates on loans from commercial banks. As a result, this affects the reduction of inflationary pressure in the economy. Moiseev, S. R., Monetary policy. Theory and practice. With. 60-75

In world practice, the discount rate, from the point of view of commercial banks, is the cost of excess reserves.

So when the national bank lowers this rate, it encourages commercial banks to lend. Accordingly, loans extended by commercial banks through these loans increase the money supply.

In the case of sufficiently low inflation, a change in the interest rate can be used to stimulate the growth of the money supply in the economy, which leads to its revival and contributes to the reorientation of investment flows from government securities to the stock market. For these purposes, interest rates are lowered.

In turn, by raising the discount rate, the national Central Bank reduces the incentives of commercial banks to obtain loans, which reduces the volume of loans issued by banks and, accordingly, the supply of money. http://www.economic-review.ru/publications/61/

Figure 4 - Relationship between the refinancing rate and inflation

The diagram shows 2 trends:

First: from June to December 2010, where you can see that with a decrease in the refinancing rate, inflation in the country increases;

Second: from March to October 2011, where it is fashionable to observe that with an increase in the refinancing rate, inflation decreases.

Thus, we can conclude that there is an inverse relationship between the dynamics of the refinancing rate and inflationary processes in the country.

Interest on deposits in all banks is tied to the refinancing rate. The yield on a deposit above the refinancing rate by 5 percentage points is subject to income tax - that is, the bank is obliged to withhold tax from a deposit whose interest exceeds the current refinancing rate by 5%. http://damoney.ru/bank/stavka-refinansirovaniya-cb-2010.php.

Recently, there has been a gradual decrease in the refinancing rate, and at the same time interest on bank deposits. Although until recently, banks broke records for bank deposits offered to the population with high interest rates. Banks needed to attract funds at any cost in order to stay afloat after the financial crisis that suddenly came out of the blue. But the time will come to pay off debts and there is a possibility that some banks will not be able to fulfill their obligations - so some experts predict a second wave of the crisis in the banking sector.

Thus, the Central Bank refinancing rate directly affects the profitability of bank deposits for the population. That is, the income that we will receive by putting money on deposit depends, among other things, on the current refinancing rate.

Interest on deposits not only of Sberbank, but of all Russian banks strongly depends on the Central Bank refinancing rate, which changes periodically.

And at the legislative level it is established that if a bank offers a deposit interest rate higher than the refinancing rate, then the tax on the depositor’s profit increases sharply.

The relationship is direct: the lower the refinancing rate, the lower the interest on deposits in Russian banks. Moreover, only rare banks have interest rates on deposits that exceed the refinancing rate determined by the Central Bank.

Figure 5 - Relationship between interest on deposits and refinancing rates

The diagram shows the inverse relationship between the refinancing rate and interest on deposits (in this diagram, interest on Sberbank deposits). Consequently, the higher the refinancing rate, the lower the interest on deposits.

Conclusions to Chapter 2

Changing the rate is one of the instruments of the state's monetary policy, along with open market operations (purchase and sale of government securities) and changing the value of the mandatory reserve norm for commercial banks in the Central Bank.

By reducing or increasing the base rate, the Central Bank can strengthen or weaken the interest of commercial banks in obtaining additional reserves by borrowing from it. When the rate decreases, the cost of borrowed money decreases, and, as a result, the volume of corporate investment and household spending increases, stimulating GDP growth. Conversely, raising rates curbs investment and spending, which slows economic growth.

Changes in the refinancing rate directly affect changes in rates on loans from commercial banks. The latter is the main goal of this method of central bank monetary policy.

The refinancing rate allows the Central Bank to indirectly influence the inflation rate by changing the money supply by regulating the size of the monetary base. If the Central Bank increases the refinancing rate, commercial banks will strive to compensate for the losses caused by its growth (increase in the cost of credit) by increasing rates on loans provided to borrowers, i.e. changes in the refinancing rate directly affect changes in rates on loans from commercial banks. As a result, this affects the reduction of inflationary pressure in the economy.

The refinancing rate is below market rates and serves as a benchmark for commercial banks. Changing the rate allows the Central Bank to pursue a policy of “expensive” and “cheap money”.

The Central Bank refinancing rate directly affects the profitability of bank deposits for the population. That is, the income that we will receive by putting money on deposit depends, among other things, on the current refinancing rate.

Lower interest rates stimulate business activity, the investment process and thus economic growth.

A change in the official refinancing rate of the Central Bank means a transition to a new monetary policy, which forces commercial banks to make the necessary adjustments to their activities.

The refinancing rate is the main regulator of the Central Bank of the Russian Federation, which allows you to change the development trends of the national economy. Thanks to it, you can learn about the economic situation in the country without listening to the opinions of experts and statements of politicians.

Determining the refinancing rate

In simple terms, this is the rate at which the Central Bank issues money to commercial banks to conduct their activities. Banks, receiving borrowed money, issue loans to individuals and legal entities at a higher interest rate.

Information about it is publicly available on the Central Bank website cbr.ru/press/keypr/ so anyone can familiarize themselves with the trend in the financial market and obtain a number of more important information.

Since 2016, the key rate has become equivalent to the refinancing rate, but the term itself has remained, since it is used to calculate interest on loans, the maximum possible amount of penalties, the basis for taxation of deposits, and so on.

What does the refinancing rate affect?

The refinancing rate was first used in 1992. Since then, its value reached 200% per annum, and gradually decreased in the period 2016-2018. Despite the difficult economic situation, the Central Bank of the Russian Federation reduced the rate from 11% to 7.5%. This means that the state is able to cope with external pressure on the national economy.

In parallel with the decline, measures were taken to devalue the currency. This increased interest in domestic products on the world stage, which increased the influx of foreign currency into the national economy.

These measures allowed us to achieve the following:

reduction in inflation;
stimulation of domestic production;
export promotion;
reduction in the cost of loans for individuals and legal entities.

That is, a change in a key parameter can have a great impact on the lives of ordinary citizens, which is why the world's leading experts pay great attention to this indicator when studying the economic situation in the state.

According to this value, it is possible to evaluate the prospects of investing in states and examine the potential risks of non-return. With a high level of inflation and a tendency to increase it, it is irrational to invest money in the country.

The regulator is established once for several months and depends on trends in the financial market.

Banks and other financial and credit organizations always rely on this indicator in matters of taxation and in calculating the profitability of financial products:

if income on deposits in national currency is higher by 5% compared to the refinancing rate, then it is necessary to pay income tax, which is 35%. But not the entire amount is taxed, but only dividends received that exceed the rate by the specified amount;
The Federal Tax Service charges fines and penalties for failure to comply with payment deadlines, according to this value;
the rate is taken into account when calculating penalties for late payment of wages by the employer. In order for an employee to receive a penalty, it is necessary to contact the State Tax Inspectorate.

That is, the indicator affects not only the financial market, but is also used by commercial and budget organizations in their work.

Dependence on inflation rate

The Central Bank of the Russian Federation uses the refinancing rate to stimulate or curb economic growth. It depends on the level of inflation, reflects the real situation of the economy in the country and makes it possible to restrain and increase the rate of economic growth.

The relationship between the refinancing rate and inflation is as follows:

When the inflation rate decreases, the key rate also decreases. This allows banks to borrow money from the Central Bank of the Russian Federation at a lower interest rate, which provides grounds for reducing interest rates on loans and deposits. A gradual decline will not lead to significant changes in the financial market, but if there is a large change at once, a credit boom may be triggered. There is a possibility of devaluation of the national currency, due to which the inflation rate will increase;
if it grows, the rate also increases. A gradual change cannot change the market trend, but with a one-time significant change, the cost of loans will increase significantly. This will lead to an increase in the value of the money supply, so inflation will begin to decline.

Who determines the bet amount?

The optimal value is being discussed by experts at the Central Bank. Based on the state of the economy and the level of inflation, a decision is made to increase or decrease this value. When inflation decreases, the rate also decreases.

In practice it looks like this:

businesses, when the rate decreases, can produce more goods for the same money, since their real value will be higher. That is, the level of production in the country is stimulated. Individuals also receive greater real income, so their purchasing power increases;
when consumers start buying goods in large quantities, there is a shortage in the market. Because of this, sellers are forced to increase the cost of products, which leads to increased inflation.

A change in the rate can lead to various processes in the country's economy. To obtain the maximum desired effect, a set of measures is used. For example, to reduce inflation, government spending is further reduced and the amount of money in circulation among the population is reduced.

Regulatory methods

There is balanced and unbalanced inflation. The first exists when the market successfully adapts to changes in pricing.

There are several ways to influence its level:

tightening tax policy;
reduction in government spending;
reduction of economic activity on the part of government agencies;
limiting the maximum salary at the legislative level;
decrease in money supply;
rate change.

Economics distinguishes three main types:

Moderate when its size does not exceed 5% per year. Sometimes it can be 10%. At this level, enterprises are interested in increasing production volumes.
High, when it can reach up to 200% per month. Today it is observed in countries with developing economies.
Hyperinflation is studied every day. Over the course of a year it can amount to several thousand percent.

Thus, the inflation rate has a direct impact on the country's economy. The Central Bank, by changing the refinancing rate, can regulate the rate of its growth. However, a complex impact is required in order to change the trend in the market, so experts use several available tools to control its level.

What is the difference between the key rate and the refinancing rate?

The difference between the key rate and the refinancing rate lies in the type of loans they apply to. The essence is the same: this is the cost of loans issued by the Central Bank of the Russian Federation, but the duration of the agreement differs.

To understand this, you need to understand the terminology. The key rate is the cost of a loan issued by the Central Bank to financial and credit organizations for a short period. It is on the basis of this indicator that the return on deposits and the cost of loans for individuals and legal entities are calculated.

The refinancing rate is the cost of long-term loans from the Central Bank. Used to calculate fines and penalties in government organizations.

In practice, these two indicators are the same. They were equalized for the first time in 2016. Since then, when one indicator changes, the second also changes by a similar number of points.

Thus, the difference in fact is only in terminology. They all have the same impact on a country's economy, stimulating or constraining growth and supply and increasing or decreasing the real value of the money supply.

What is the difference between the discount rate and the refinancing rate?

The discount rate of the Central Bank is the cost of the loan at which the Central Bank lends money to commercial banks.

According to current legislation, the Central Bank sets the minimum discount rate. This indicator is also called the refinancing rate. But, unlike this term, commercial banks also set the discount rate independently. It is an important financial tool that allows you to manage various trends in the financial market.

The difference between the rate of the Central Bank of the Russian Federation and a commercial bank

If the Central Bank indicator is a key index that allows you to change the situation on the market, then in the case of a commercial index it is the price of loans that the company issues to individuals and legal entities.

It is calculated individually based on the following nuances:

the state of the organization's loan portfolio;
level of debt burden of the population;
state of the financial market;
availability of free funds.

The difference between the key rate and the bank interest is the income of the financial institution. Today, Russian organizations issue loans whose cost exceeds the refinancing rate by 7–8 times. Despite the gradual decline in the cost of loans for lenders, they are in no hurry to reduce interest rates.

What does the commercial bank rate affect?

In fact, it only affects the cost of loans for a particular bank. But if such giants as Alfa-Bank, VTB or Sberbank change it, then there is a tendency to change the situation in the market as a whole.

There are several types of bets:

simple;
complex;
nominal.

Depending on its type, it is necessary to apply different formulas to calculate the final overpayment on the loan.

Today, banks are not interested in reducing interest rates on loans, since the condition of the loan portfolio is not ideal. The share of bad debts is quite high. Lenders are required to pay income taxes on loans issued. That is why Russians will not have to wait for a significant reduction in interest rates in the near future.

Dynamics of the refinancing rate of the Central Bank of the Russian Federation: 01/1/1992–03/26/2019

Studying the dynamics helps experts understand how the state’s economy has developed over several years. This data is more important than the statements of most politicians.

Table with refinancing rate values by year: 01/1/1992–03/26/2019

Based on the graph, we can conclude that the average inflation rate has decreased significantly over the past 2 years. This trend continues despite sanctions and devaluation of the national currency.

The value from 2019 is 7.75%. Official website of the Central Bank: cbr.ru.

Studying the refinancing rate and the history of its changes, it can be assumed that the Bank of Russia is pursuing a balanced policy to reduce inflation and stimulate domestic production in the country. Today the refinancing rate is equivalent to the key one. But the old term is still actively used, since it helps financial organizations correctly calculate interest for lending money and penalties for violating the contract.

Most experts agree that the downward trend will continue until the country's inflation rate reaches 4%. This is precisely the indicator that the current President of the Russian Federation set before the Central Bank during his second term in office.

According to some experts, European and US sanctions should bear fruit soon, which will lead to an increase in the key rate. This opinion exists among Western experts who specialize in the Russian direction.

Every time we come to the store, we remember the golden time, when our favorite chips cost nine rubles compared to today’s 60. Prices are rising every year, and salaries are in no hurry to catch up with them. Why can’t we just freeze prices, eliminate inflation, and what does the Central Bank’s key rate have to do with it? Prospect Mira answers these important questions.

1. Is it possible to freeze price increases?

Can. A striking example is the price regulation policy of the Soviet era. Buyers during the USSR were, to put it mildly, not always happy. There is an illustrative example in modern Russia - these are natural monopolies with their long-term regulation of tariffs. It cannot be said that consumers of natural monopolies are happier than others.

Prices are the language in which consumers and producers communicate.

Imagine that the state froze the prices of eggs and cheese, but the prices of wine and walnuts are not limited. For entrepreneurs, this is a signal: you won’t earn much on eggs and cheese; the real money is hidden in the wine and nut sector, where no one will say “stop.” It becomes pointless to build poultry farms and cheese factories, and we end up with queues for essential goods.

What happened in the end? Improving the situation for some categories of the population, for example, for pensioners. But while price competition has been suppressed, another one has appeared. A dozen eggs will be received not by those who have money, but by those who are willing to pay with another resource - time to stand in lines, strength to get up early, and so on. However, all this will be meaningless when the husband of the store manager gets the eggs.

Now imagine that prices will be frozen not only for eggs and cheese, but for everything that our lives depend on - winter clothing, medicines and services.

Conclusion: such measures are not an option.

2. Is it possible to make prices go down?

Experts say that falling prices—deflation—is sometimes worse than rising prices.

Deflation can be different: sometimes good, but more often bad. A good one is natural deflation, when companies reduce costs, increase efficiency, increase competitiveness and producers are ready, without reducing output and jobs, to reduce prices for their products in the fight for markets and buyer attention. But let’s imagine a situation where deflation is organized “from above.” We know that an apartment, a dacha and a car will be cheaper tomorrow than today. Just like a box of champagne for the New Year, and in general everything that surrounds us. Our money will go out of circulation and be “fixed” in our pockets in anticipation of even lower prices.

Money will stop reaching producers, and this will reduce their income, force them to reduce production, fire workers or reduce their wages. People will stop buying and stores will stop selling because businesses will stop producing. This is bad deflation.

An axiom of economics: with stable, low inflation, the economy grows, as does the income of each individual. Low, stable inflation is one of the drivers of economic growth. Experts believe that for Russia 4% is the optimal level of annual inflation.

— The goal of the Bank of Russia is to ensure price stability and keep inflation close to 4%. Low, predictable inflation is a necessary condition for the safety of income and savings. All decisions on the key rate made by the Board of Directors of the Bank of Russia are aimed at achieving our inflation goal - Alexey Zabotkin, director of the monetary policy department of the Bank of Russia, told Mediakorset.

3. Is it realistic to reduce inflation to 4%?

Last year, according to the Central Bank, inflation was 2.5%, which is a record for our economy. In 2018, expected consumer inflation will be 3.8–4.2%. Today, the Central Bank’s task is to keep price growth near the target level.

It is necessary to understand that this does not mean an increase in the price of all goods and services at once by exactly 4%. Some things will become more expensive, some less. This is the average value of a specific basket of consumer goods and services. As a result, the consumer basket will increase in price by no more than 4% by the end of the year. Monitoring this is the task of the Bank of Russia.

4. Why does it seem like statistics are lying?

Subjective perception tells us that prices in stores are rising faster than official sources record them. The fact is that we pay attention to the rise in prices only of those products and services that we use.

Statistics impartially count not only your favorite cheese, but also kefir, which you don’t pay attention to, as well as those products that have fallen in price. Therefore, the overall rise in prices for products and services remains around 4%.

In addition, everyone has their own inflation. People with above-average incomes who prefer imported products will find that their inflation is higher than average due to rising exchange rates. But, for example, vegetarians do not consume products of animal origin, and this category of goods is not included in their personal inflation.

In Russia, inflation is measured in the same way as in other countries of the world - based on a consumer basket, which contains more than 500 goods and services that everyone needs. The calculation also takes into account the frequency of consumption of each product from the basket.

5. Can the Central Bank influence inflation?

The Bank of Russia is responsible for consistently low inflation: the rate of price growth should not be too high or too low. For this purpose, monetary policy is implemented.

Its main instrument is the key rate. This is the percentage at which commercial banks borrow money from the Central Bank or, conversely, deposit it there. The level of the key rate is calculated by Bank of Russia economists based on the current conditions, so that inflation remains within target limits and the economy develops and grows.

6. How does the key rate affect inflation?

Through the key rate, the Central Bank regulates the value of money. If the key rate rises, loan rates also rise. Along with loans, money becomes more expensive, and we decide to postpone purchases - for example, we postpone applying for a mortgage to a later date. Following the decline in consumer demand comes a decline in inflation. This applies to all spheres of the economy: production, agriculture, services.

And vice versa - a decrease in the key rate is followed by a reduction in the cost of loans, and the time comes to buy a car on credit and upgrade your smartphone. Demand for goods and services increases, people go to restaurants and have fun more often. An increase in demand inevitably leads to an increase in inflation.

This does not happen all at once. The entire chain - from changes in the key rate to its impact on the price level - takes more than one quarter.

7. What happens if the key rate is reduced too sharply?

Money will become unprecedentedly cheap and accessible. People will rush to buy, causing demand to exceed supply. As a result, prices will immediately rise.

Thus, a thoughtless reduction in the key rate will have the opposite effect - increasing inflation. Both the economy and each individual will be in economic trouble, and the positive effect of the rate cut will not be achieved.

As for loans, in such a situation you should not expect a “magic” reduction in rates. In such cases, the bank keeps a staff of analysts: they calculate the risks of accelerating inflation. Therefore, commercial banks in such a situation can, on the contrary, raise their interest rates.

8. Is it possible to calculate your personal inflation?

Official inflation may differ from what you experience. It depends on what you eat, what services you use and what region of the country you live in.

Afterwards, create a table with prices from your consumer basket and record them monthly throughout the year. If the observation period is shorter, the result will be incorrect: seasonality will not be taken into account when, for example, vegetables and fruits become significantly cheaper by autumn.

Based on these observations, it is easy to calculate your own inflation index. You need to divide the cost of a basket at the end of the observation period by the cost of the same basket at the beginning of the observation period. It is better to do this the way official inflation is calculated: December to December. Read more about how to calculate your own price index here: link.

Yesterday on the radio I again listened to discussions about fighting inflation by increasing the refinancing rate. In general, I could not resist and explain.

There are two types of inflation - monetary inflation and cost inflation. They differ in their models. They always coexist together, but in different proportions. However, economists prefer not to mix them and single out one based on their ideological preferences.

Monetary inflation is obvious from the Fisher equation MV=PQ and is applicable in a saturated competitive market (this is a boundary condition that defines the scope of applicability of this model). If the market is saturated, then the reaction P to a change in M and/or V occurs, which monetarists expect for their manipulations. This model operates in t.s. "normal" conditions, when inflation does not exceed approximately 5% per year.

The question is, what is this mystical figure of 5% per year? Where does it come from? And it’s all about the lending rate and the marginal profitability of production. The fact is that usually the interest rate on loans is not lower than inflation - a commercial bank is an enterprise whose statutory activity is making a profit, and not a charitable organization. Therefore, if inflation is 3% per year, then the bank will make a mistake if it gives a loan at less than 3%. This state can distribute not only loans at rates below inflation, or even interest-free loans, or even completely free subsidies, but we are talking about the market?

What does the marginal profitability of production have to do with it? All enterprises have different profitability - some enterprises have a profitability of 6%, some 10%, and some 100% per annum. The problem is that if an enterprise has a profitability of only 6%, then it is not able to take out a loan at more than 6% per year. And the bank understands this too. Consequently, if inflation is 5.9% per year, then the bank, even leaving itself a margin of only 0.1%, cannot give a loan to the enterprise - it will not be able to afford it. It would seem, so what? This enterprise will not be able to cope, but another one with a profitability of 7% will be able to cope, and even more so one with a profitability of 10%, not to mention 100%! And this is where the dog is buried! The profitability of enterprises is well grouped by industry. Therefore, at a rate of 6%, industries for which the marginal profitability is 6% or less remain without lending. They can still work for some time (and even quite a long time) due to the wear and tear of fixed assets, but there can be no talk of any development. It’s good if the enterprise is not independent, but is part of a larger one, then at the expense of other divisions it is possible to develop planned unprofitable ones, say, at the expense of profits from the activities of the sales department, pay salaries to loaders from the logistics department. What if the enterprise is highly specialized? Alas, then its fate is identical to the fate of other enterprises in the same industry.

A true market believer will exclaim here: “That’s how it should be! The invisible hand of the market removes ineffective enterprises. Either they increase their efficiency or leave the market, in any case, efficiency increases!”

The point is that you cannot simply remove the “weak links”. Well, everyone can’t be, say, realtors or medicine sellers! For the economy to function, all links of a continuous technological chain must function! If the loan rate exceeds the marginal efficiency of the weakest link, then with its death the entire technological chain is destroyed!

Those. at low levels of inflation, as long as the loan rate does not yet exceed the limit for the weakest link, it is still possible to use changes in the refinancing rate for the purpose of monetary regulation of the money supply due to the fact that money circulation is much more elastic than production (response time is shorter). We saw that prices were falling (and this can only happen when the market is saturated with fierce competition and limited effective demand) - they lowered the loan rate, increased the money supply, and effective demand increased. On the contrary, they saw that prices were rising - they raised the interest rate on loans, the demand for loans was declining, and so was effective demand. It is under these conditions (the refinancing rate is below the marginal profitability and the mechanism for issuing money is purely credit, i.e. there is no influx of money into the economy through other mechanisms, for example, foreign exchange) and there is a positive correlation between inflation and economic growth, as well as a negative relationship between rising loan rates and rising prices, i.e. You can use the regulation of the refinancing rate to regulate inflation.

What happens if the refinancing rate is significantly higher than the marginal profitability, taking into account long-term consequences? Due to wear and tear of fixed assets and lack of renovation, not only “weak links” begin to drop out, but also all enterprises connected to them in technological chains. Even with a decrease in MV, turnover Q falls more, and therefore P increases. Moreover, due to the high interest rates on loans, enterprises’ own funds are washed away, they are forced to use borrowed funds, therefore, the cost of production also begins to include the costs of servicing attracted loans. The process is cumulative in nature, an increase in the refinancing rate leads to an increase in cost inflation, and under these conditions there is a positive correlation between the increase in the refinancing rate and inflation, while production falls. Here, monetary methods of fighting inflation lead to the opposite result.

Additionally, the situation is aggravated by the government, which, for its part, also seeks to increase the tax burden and reduce government spending, thereby facilitating the withdrawal of own funds from enterprises and savings from the population (they cannot print money themselves), as well as stupidly by 10-15-20%. increasing tariffs of natural monopolies. What kind of “doubling of GDP” is this! I don’t understand at all how it is possible, without suffering from schizophrenia, to simultaneously talk about reducing inflation to 6% and at the same time increase tariffs by 10%? Well, if suffering, then it’s understandable...

The turning point, below which monetary inflation prevails, and above which cost inflation prevails, is calculated statistically from an analysis of figures for developed countries, and for our time it is approximately 5.5-6% per year (see Sadkov V.G., Grekov I.E. On target guidelines for the levels of monetization of the economy and inflation from the perspective of the final results of the development of society // Society and Economics. - 2008. - No. 5. - P. 3-22.). This is not the optimal inflation value, the optimal is approximately 3% (and the refinancing rate is the same) - at the same time, economic growth is maximum, as well as the maximum margin of stability during regulation.