The Central Bank did not ignore the first doubts about its ability to reduce inflation

The Bank of Russia published full data from a survey of inflation expectations in October 2021, which was one of the reasons for the sharp (by 0.75 percentage points) and unanticipated by the market increase of the key rate last Friday. The paper shows that it is not a matter of perception of current inflation - it has clearly returned to slightly better than August levels under local factors. However, several months of increasing pressure have led to a slow corrosion of long-term expectations - it is against them that the Central Bank is playing. The year-on-year CPI growth itself in October looked moderate even in terms of sustainable inflation components before the Central Bank Board meeting, and the contribution of occasional components ("fruit and vegetable" inflation, largely localized in two federal districts in southern Russia) are not factors that the regulator pays attention to when discussing monetary policy measures (MPR). Besides, the softness of MP in the summer of 2021 had already been de facto cured by the rapid increase of the key rate in August-September - the lag between the actions of the Bank of Russia and a stable result is usually three to nine months, and the September-October increase of the annual CPI rate itself does not make sense another 0.75 percentage point (pp) increase to 7.5% per year with the prospect of its growth to 7.75-8% in late 2021. Analysts who were betting on the key rate on October 22 at 7% per annum (a 0.25-point increase) had reasons to expect moderation from the regulator: the October reports from Rosstat already contained factors which would allow Russia to talk about the peak of the CPI growth in October 2021, and assumptions about the pro-inflationary nature of the November lockdown are conditional - apparently, in reality it depends on the weakly predictable pattern of the pandemic in the regions. As a reminder, the inflation rate "observed" by the population rose in surveys for the Central Bank in October to 16.3% - by 0.2 percentage points lower than in August. However, it is alarming that in the group of respondents with savings it is higher than in August (13.6%). However, price expectations for October 2022 rose radically, to 13.6% overall. 11.4% in the forecast of the "saving" group and 15.6% in the group without savings - a five-year record. In addition, the Bank of Russia clearly had to be unpleasantly surprised by a poll of professional analysts, who expect inflation of 7% per annum for 2021 (a month ago, under approximately the same conditions - 5.9%), and in 2022 the same analysts polled by the Central Bank expect inflation of 4.2%: it is not too different from the Bank of Russia "target" of 4%, but symptomatic, as well as a growing deviation from the inflation target of imputed yields on OFZ. In August, this "collective forecast" of the market for future long-term inflation was typically 4% annually (sometimes 4.1%); in September - 4.1-4.2%; in October, the imputed yield on federal loan bonds on both mid-term and long-term securities, until 2030, was always 4.3%. In practice, this is evidence of the first collective doubts that the Bank of Russia can (including politically) resist the pressure of price expectations by means of MPR measures - the response to this could only be demonstrative rigidity, and it will be continued, based on the decision of the Central Bank, until the required result is achieved.