CBR Quarterly Inflation Review - Q1 2005
Central bank: cbr | Type: quarterly_review | Date: 2005-03-31

THE CENTRAL BANK
OF THE RUSSIAN FEDERATION
(BANK OF RUSSIA)
Quarterly
Inflation
Review
2005 Q1
Research and Information Department
Introduction........................................................... 1
Major Inflation Indicators .......................................... 3
Quantitative and Qualitative Monetary Indicators .......... 15
Statistical Addendum ............................................. 23
1 2005 Q1
Statistical Addendum
In 2005 Q1, consumer price inflation was
higher than in the same period last year. Growth
in paid service prices regulated at federal and re-
gional levels adversely impacted Q1 consumer price
dynamics. According to estimates, it was the big-
gest growth since the 1998 crisis.
This year, price formation has been affected
by changes in tax legislation, which have reduced
the overall tax burden on the economy, especially
the manufacturing and service sectors, while in-
creasing the taxation of the windfall profits re-
ceived by the producers and exporters of raw
materials.
In 2005 Q1, regional governments made
payments to households from their budgets in
connection with the replacement of in-kind ben-
efits by cash allowances. However, the payments
share in household total money income was in-
significant.
Despite Q1 growth in energy prices on the
world market, there was a fall in the price of petrol
on the domestic consumer market.
The main causes of the accelerated con-
sumer price increase in 2005 Q1 lay outside the
monetary sphere. The effect of monetary factors
on inflation in that period may be described as
neutral. The slowing of growth in the money sup-
ply in the middle of last year on an annualised ba-
sis did not cause the money supply to put addi-
tional pressure on core inflation in the first quar-
ter of the year. In the second, however, core in-
flation dynamics may be affected (other things
being unchanged) by a short-term acceleration of
M2 growth in the last few months of 2004 and
cash expansion in April (before the May Day holi-
days) and June (the beginning of the summer
holiday season). However, Q2 cash dynamics will
depend not only on seasonal factors, but also
growth in non-interest budget expenditures con-
nected with the monetisation of social benefits.
The current rate of growth in the money
supply may influence core inflation in the last few
months of 2005. The continuation of the slowing
of growth in the ruble supply on an annualised
basis is extremely important for the attainment of
the desired core inflation rate in 2005.
The exchange rate policy pursued by the
Bank of Russia had a favourable effect on core
inflation. The ruble gained 1.1% against the US
dollar on the domestic foreign exchange market
last March as compared with December 2004. The
stability of the nominal exchange rate of the ruble
contained growth in the prices of imported con-
sumer goods and, consequently, their domesti-
cally manufactured analogues. The effect of the
exchange rate on non-food price dynamics was
more significant than food price dynamics.
The measures taken to regulate the money
supply and the increased role played by the bud-
get factor helped sterilise a large part of free li-
quidity, which potentially threatened the chances
for success in attaining the inflation target. In ad-
dition, the predominant trend in the ruble supply
growth was the expansion of the low-liquidity
ruble components (ruble time deposits). At the
same time, the share of cash in the M2 aggregate
contracted slightly and this along with other fac-
tors had a favourable effect on the money veloc-
ity and inflation dynamics.
The monetary situation in 2005 Q1 devel-
oped against the background of the slowing of
economic growth, favourable external economic
environment, growth in the demand for foreign
currency-denominated assets and the increased
influence of the budget developments due to the
expansion of the Stabilisation Fund. As foreign
currency continued to flow to the domestic for-
eign exchange market in quantity, the Bank of
Russia made efforts to contain money supply
growth and its monetary policy aimed to restrain
the expansion of the monetary base and absorb
excess liquidity. A large part of the money supply
by the monetary authorities, formed through the
inflow of foreign currency, was absorbed by the
expanding Stabilisation Fund.
To absorb the growing volume of banking
sector liquidity, in 2005 Q1, the Bank of Russia
conducted daily fixed-rate deposit operations on
Introduction
2005 Q1
standard terms, continued to hold deposit auc-
tions and intensified operations with its own
bonds (OBR). These instruments used by the Bank
of Russia to place free funds were in high demand
by credit institutions.
As the level of banking sector liquidity re-
mained high in January-March 2005, Bank of Rus-
sia instruments relating to the provision of liquid-
ity, such as repo and currency swap operations,
were not popular with credit institutions, but the
value of intra-day and overnight loans extended
by the Bank of Russia increased significantly year
on year.
The average cost of short-term funds set by
the interest rate band in line with the Bank of Rus-
sia interest rate policy was basically unchanged in
the first quarter. At the same time, the cost of
funds borrowed by the real sector was slightly re-
duced in February and March and this along with
other factors created conditions for moderate in-
flation expectations.
3 2005 Q1
Major Inflation Indicators
According to the Federal Statistics Service,
consumer prices rose 5.3% in 2005 Q1 as against
3.5% in 2004 Q1. In January, consumer prices were
up 2.6% month on month, in February 1.2% and
in March 1.3% as against 0.8% in March 2004.
Consumer price inflation in the moving 12-month
period stood at an estimated 13.6% in March
2005.
Core inflation stood at 2.4% in 2005 Q1,
as in 2004. In January, prices of this group of
goods edged up 0.9% month on month, in Feb-
ruary 0.7% and in March 0.8% as against 0.7% in
March 2004. In March 2005, core inflation, mea-
sured in the moving 12-month period, stood at an
estimated 10.5%.
Estimates show that growth in the prices of
goods and services included in the core inflation
calculation accounted for 1.9 percentage points,
or 36.6% of overall consumer price growth in
January-March 2005 as against 2.0 percentage
points, or 55.3% in January-March 2004.
The high level of core inflation registered
during the past two years is largely due to volatile,
local and short-term factors.
Food prices, excluding vegetable and
fruit prices, gained 3.1% in 2005 Q1 as against
3.2% in the same period last year. In March 2005,
the prices of this group of products rose 1.1% as
against 0.9% a year earlier. Estimates show that
growth in January-March 2005 food prices, ex-
cluding vegetable and fruit prices, accounted for
1.3 percentage points, or 24.6% of overall con-
sumer price growth, as compared with 1.6 percent-
age points, or 45.0% in the same period of 2004.
The price of granulated sugar inched up
0.4% last March (for the first time since July 2004
when it rose 9.1%). These figures testify to the
high volatility of sugar prices amid the price insta-
bility of the world sugar market.
The most significant increase in food prices
in 2005 Q1 was registered in meat and poultry
prices, which gained 6.9% as against 2.7% in the
same period of 2004. Growth in beef and pork
prices in that period (11.4% and 6.7% respectively)
was bigger than growth in poultry prices (3.2%).
Meat prices were affected by the negative trends
of 2004, but the beginning of this year saw some
signs of improvement on the domestic meat mar-
ket due to output growth and the expansion of
meat imports.
The acceleration of growth in fish and sea-
food prices, registered in the second half of 2004,
continued in January-March 2005. It was the re-
sult of the significant increase in import prices and
decline in the output of fish products in 2004. Fish
Major Inflation Indicators
2005 Q1
Food price inflation rates (%)
Growth (March 2005
on December 2004)
Growth (March 2004
on December 2003) Outcome
Bread and bakery products 1.2 9.1 Retardation by 7.6 times
Cereals and legumes -1.2 4.3
Pasta products 1.5 6.6 Retardation by 4.4 times
Meat and poultry 6.9 2.7 Acceleration by 2.6 times
Fish and seafood 6.3 1.0 Acceleration by 6.3 times
Milk and dairy products 3.1 3.0 Slight acceleration
Butter 2.6 1.1 Acceleration by 2.4 times
Sunflower oil 1.7 -0.2
Granulated sugar -0.8 2.5
Alcoholic beverages 2.6 3.5 Retardation by 1.3 times
Inflation rates on the consumer goods market as a whole (%)
Growth (March 2005
on December 2004)
Growth (March 2004
on December 2003) Outcome
Prices of goods and services included in core inflation calculation 2.4 2.4
of which:
- food prices excluding vegetable and fruit prices 3.1 3.2 Slight retardation
- non-food prices 1.1 1.4 Retardation by 1.3 times
Prices of paid services provided to households 12.6 6.4 Acceleration by 2.0 times
of which:
- prices of goods and services regulated at federal and regional levels 16.9 8.2 Acceleration by 2.1 times
Vegetable and fruit prices 24.0 10.1 Acceleration by 2.4 times
5 2005 Q1
Major Inflation Indicators
Major meat and poultry market indicators (% growth)
Meat and poultry Beef Pork Poultry
2005 2004 2005 2004 2005 2004 2005 2004
Food production (January-March as % of January-March of previous year) 3.3 6.8
Livestock* and poultry production (January-March as % of January-March of previous year)
- by all categories of farms -2.8 -1.1
- by agricultural enterprises -0.9 4.1 -13.8 -6.4 -10.8 5.6 18.1 16.9
Imports** (January-March as % of January-March of previous year)
- volume 12.7 -49.6 29.5 -47.8
- value 11.1 -43.5 31.8 -46.1
Prices (March as % of December of previous year)
- producer prices 4.2 4.0 11.3 9.2 0.9 0.6 1.6 2.9
- livestock and poultry selling prices 4.8 4.9
- consumer prices 6.8 2.7 11.4*** 4.8*** 6.7*** 1.7*** 3.2 0.9
- import prices** -5.5 6.9 0.2 -4.7
Livestock population* as of end of month (March as % of March of previous year) -7.6 -6.5 -7.1 -6.2
* Cattle and swine.
** Estimate based on Rosstat's updated figures.
*** Excludin
g boneless meat.
and seafood prices rose 6.3% in 2005 Q1 as
against 1.0% in the same period last year.
Growth in bread and bakery product prices
slowed by 7.6 times and pasta products 4.4 times
in the first quarter of the year.
Cereal and legume prices were down 1.2%
and the price of granulated sugar dropped 0.8%.
Non-food prices inched up 1.1% in 2005 Q1
as against 1.4% in the same period a year earlier.
The last time non-food price growth was so small
in the first quarter was in 1998. In March 2005,
non-food prices rose 0.4%. The most significant
increase in non-food prices in the period under
review was registered in knitwear prices, which
went up 2.1%.
Petrol was down 1.6%, whereas in the same
period last year it was up 0.6%.
Growth in the prices of major non-food
products was smaller than in the same period last
year. There was a 0.1% fall in the prices of televi-
sion and radio sets.
Due to non-food price growth, overall in-
crease in consumer prices stood at 0.4 percent-
age points, or 6.8%, in January-March 2005 as
against 0.4 percentage points, or 10.3%, in the
same period last year.
Overall, in the first quarter of the year, as
last year, growth in food prices, excluding veg-
etable and fruit prices, was faster than growth in
non-food prices.
Sugar Market: Current Situation and Outlook
According to the United Nations Food and Agricultural Organisation (FAO)*, world sugar production is to increase by
an estimated 2.1% year on year in the 2004/2005 agricultural year. World sugar consumption in 2005 is to grow 1% year on
year. At the same time, sugar production is to decline 4.8% in CIS countries in the 2004/2005 agricultural year, while con-
sumption is expected to rise 3.5%. This may cause sugar prices to rise in that region. CIS countries, especially Kazakhstan and
Kirghizia, account for nearly 90% of Russia’s sugar imports.
According to the World Bank forecast**, sugar prices will be high in 2005. The price of raw sugar is expected to go up
20% year on year. At the same time, foreign experts predict growth in the production of sugar in Brazil, India and Mexico in
the 2005/2006 agricultural year and a contraction in raw sugar imports by India and Egypt. This will contain sugar price
growth on the world market. The price of raw sugar rose 40.6% on the London Commodity Exchange in January-March
2005 as compared with the same period of 2004 and the price of refined sugar was up 22.0%.
In the first three months of the year, the contract prices of raw sugar imported by Russia increased 27.3% year on year,
while the amount of Russian raw sugar imports contracted 6.9%. The contract prices of refined sugar went up 9.0%, while
the amount of refined sugar imports decreased 10%. Due to production growth in this country, sugar prices will hardly rise
sharply.
* December 2004.
** April 2005 .
2005 Q1
As for vegetables and fruit , in the first
quarter of the year, their prices rose more than
twice as much as in the same period last year
(24.0% as against 10.1%), but this growth was
roughly the same as average first-quarter growth
in 2001-2003 (23.9%). In March 2005, vegetable
and fruit prices grew 11.2% as against 2.8% a year
earlier. Estimates show that as a result of growth
in vegetable and fruit prices in January-March
2005, headline inflation accelerated by 1.1 percent-
age points, or 21.3%, as against 0.5 percentage
points, or 14.5%, in January-March 2004.
Consequently, significant growth in veg-
etable and fruit prices affected the overall food
prices: in 2005 Q1, food prices increased 4.9% as
against 3.8% a year earlier. In March 2005, food
price growth stood at 2.1% as against 1.1% in
March 2004.
Prices of the paid services provided to
households were up 12.6% in 2005 Q1 as against
6.4% in the same period last year. The biggest in-
crease in service prices in the first three months
of the year was registered in rent and amenities
prices (26.5% as against 13.1% a year earlier) and
pre-school tuition fees (16.7% as against 8.4%).
The increase in the prices of paid services
provided to households in January-March 2005 far
surpassed overall growth in the prices of goods,
which stood at 3.3%. According to estimates, ser-
vice price growth in 2005 Q1 accounted for 2.5
percentage points, or 47.4%, of overall consumer
price growth (as against 1.1 percentage points, or
30.2%, in January-March 2004).
The analysis of the distribution of price in-
creases in 2002-2005 (March on December of
previous year) on the basis of a selection of more
than 400 consumer goods and services, conducted
without taking account of their weight coeffi-
cients, has shown that the evening out of the in-
creases in the prices of most goods and services
continued in 2005 Q1. Thus, the prices of 51.9%
of all consumer goods and services grew in the
range of 1-3% (as against 49.7% of all consumer
goods and services in the same period last year).
However, there was a slight acceleration of
growth in the prices of goods and services in the
main price growth range (the median increase was
2.1%, a rise of 0.2 percentage points on the same
period in 2004). The distribution average increased
by 1.1 percentage points as compared with Janu-
ary-March 2004 and stood at 3.8% as against
4.2% in the same period of 2003. The standard
variation, which characterises the extent of de-
viation from the average, increased to 7.6% from
3.8% a year earlier and was bigger than in the pre-
vious three years. The excess was due to the sig-
nificant increase in 2005 of the share of goods
and services with a high rate of price growth. The
past two years have been different from the pre-
vious years in that they have seen the prices of
some goods and services decline.
Price growth (a sample average) was the
biggest in the services and the smallest in non-
food products in 2005 Q1. At the same time, the
median values of price growth for the bulk of food
7 2005 Q1
Major Inflation Indicators
and non-food products differed slightly, although
more than a year earlier. In the first quarter of the
year, the standard variation characterising the
extent of deviation of price increases from the
average for both food products and paid services
more than doubled year on year. As for non-food
products, the standard variation decreased as
compared with 2004 Q1, reflecting the evening
out of the price dynamics of individual compo-
nents of this group of goods.
The statistical analysis of food price in-
creases showed that the distribution average and
median values had grown in 2005 Q1 year on year.
The standard variation increased due to significant
growth in vegetable and fruit and meat prices.
The distribution of non-food price increases
has a marked maximum and small dispersion,
which means that the increases in the prices of
most of the products in this group are within a
small range. In the first quarter of the year, prod-
ucts whose prices increased by 1-3% accounted
for 72.6% of all non-food products. This compares
with 69.5% in the same period last year.
In 2005 Q1, the distribution of service price
increases was characterised by an acute peak cor-
responding to the 4-8% increase range. Com-
pared to 2004 Q1, the increase range in the price
of most services shifted to the right and became
narrower. The distribution of service price in-
creases in the first quarter of the year had some
typical characteristics that were registered in the
previous years. First, it was a marked proportion
of services whose prices had declined. The same
situation applied to 2004 Q1. Second, the distri-
bution in the 0-10% price increase range was vir-
tually the same as in 2003. Third, there was a fairly
large share of services whose prices increased
more than 20%, a distribution registered in the
same period of 2002.
Rosstat data indicate that in all federal dis-
tricts consumer price growth in 2005 Q1 was
higher than last year. In the Central, Southern and
Far Eastern Federal Districts consumer prices rose
faster than in Russia as a whole by 0.2 percentage
points, 1.3 points and 0.3 points respectively.
Estimates show that the differences be-
tween the constituent entities of the Russian Fed-
eration with respect to the cost of a fixed set of
goods and services used by the Federal Statistics
2005 Q1
Service in the interregional comparisons of house-
hold purchasing power narrowed in 2004. In 2005
Q1, this tendency changed, however. The regional
difference ratio 1 increased by 0.3 percentage
points in March 2005 as compared with Decem-
ber 2004. These dynamics are largely due to the
fact that unlike the situation in 2004, there was
no slowing of consumer price growth in the Far
Eastern Federal District, which has the most ex-
pensive basket.
In January-March 2005, as in 2004, veg-
etable and fruit prices demonstrated the most sig-
nificant differences in rates of growth by region.
In the Far Eastern Federal District vegetable and
fruit prices grew 10.6%, whereas in the Southern
Federal District they rose 32.4%. However, rates
of growth in non-food prices and food prices
without vegetable and fruit prices were roughly
the same in all federal districts.
Growth in service prices increased signifi-
cantly in all federal districts in the first quarter of
the year as compared with the same period of
2004. In the Far Eastern and Southern Federal Dis-
tricts, for instance, service prices rose by 9.2 per-
centage points and 9.3 percentage points respec-
tively (in Russia as a whole, service prices grew by
6.2 percentage points).
External Conditions
World Economy and International Financial
Markets
According to preliminary data of the US
Department of Commerce’s Bureau of Economic
Analysis, US real GDP expanded 3.6% in January-
March 2005 year on year as against 5.0% in Janu-
ary-March 2004. The slowing of GDP growth was
due to the increase in the negative contribution
of net exports to GDP growth. The expansion of
individual consumption, government sector con-
sumption and investment and investment in pri-
vate sector housing construction slowed down
amid the acceleration of growth in fixed capital
investment in US private sector’s production. In
2005 Q1, US industrial output growth rates were
faster than in the same period last year, in the Eco-
nomic and Monetary Union and Japan they were
slower than last year and the United Kingdom reg-
istered a decline in production.
US inflation stood at 1.6% in March 2005
(as compared with December 2004) as against
1.7% in March 2004. Food prices slipped 0.3% as
against 0.4% a year earlier, a decline largely due
to a fall in vegetable and fruit prices. Prices of ani-
mal food products, excluding milk and dairy prod-
ucts, inched up 0.7% (in March 2004, they slipped
0.9%). Food price growth did not have much bear-
ing on inflation, whereas the increase in the price
of motor fuel did, although it slowed down sig-
1 Regional difference ratio is calculated as the difference between the cost of a fixed set of goods and services in the most an d
least expensive regions relative to the national value of the same set of goods and services.
9 2005 Q1
Major Inflation Indicators
nificantly (from 17.8% in January-March 2004 to
9.1% in the same period of 2005).
US core inflation 2 stood at 1.5% in March
2005 as compared with December 2004, whereas
in March 2004 it was 1.3%. The increase amid the
fall in the price of the entire set of goods and ser-
vices included in the consumer goods basket may
be regarded as evidence that the role of funda-
mental factors of inflation, such as growth in the
aggregate demand for goods and services, has
increased in the United States, while the effect of
transient factors, such as price fluctuations on
world commodity markets, has become less. At
the same time, it should be noted that too big a
contribution to US core inflation was made by the
rise in the prices of one group of products, namely,
cars. In addition, the increase in the prices of cloth-
ing and footwear, which also had a major effect
on US core inflation, was caused by seasonal
growth in the demand for this group of products.
Eurozone inflation stood at 0.4% in March
2005 as compared with December 2004 as against
0.7% in March 2004. Growth accelerated in the
prices of food and energy products, particularly
vegetables and fruit and liquid fuel. The level of
prices of other goods and services, excluding al-
coholic beverages and tobacco products, declined
0.1%, whereas in March 2004, it rose 0.2%. Thus,
the situation in the eurozone differed from that
in the United States in that the temporary factors
relating to the situation on some commodity mar-
kets had the most significant effect on eurozone
inflation. However, the slowing of growth in con-
sumer goods prices was common for the eurozone
and the United States.
As for the emerging markets, which account
for a large proportion of Russian trade turnover,
inflation slowed significantly in March 2005 as
compared with December 2004 in Belarus (2.6%
as against 5.1%), Hungary (1.8% as against
3.8%), Slovakia (1.9% as against 5.4%) and the
Czech Republic (0.8% as against 2.1%). In
Ukraine, inflation accelerated to 4.4% from 2.2%
in March 2004. Consumer price growth in China
stood at 1.5% as against 1.2% in March 2004.
The US Federal Reserve raised the bench-
mark overnight interbank loan rate (federal funds
rate) twice in 2005 Q1: in February, it increased it
from 2.25% to 2.5% and in March from 2.5% to
2.75% (in 2004, this benchmark interest rate was
raised by 1.25 percentage points). Since Decem-
ber 2004, it has exceeded the European Central
World Economic Developments in 2005
According to the IMF World Economic Outlook, published in April 2005, the world’s economic growth rates will slow
down to 4.3% in 2005 from 5.1% in 2004. In the United States economic growth will slow down to 3.6% from 4.4%, in the
eurozone to 1.6% from 2.1%*, in Japan to 0.8% from 2.7%** and in China to 8.5% from 9.5%. At the same time, the
average annual rate of inflation in the industrialised nations is expected to remain unchanged from 2% in 2004 and 2.7% in
the United States. Eurozone inflation is to slow to 1.9% from 2.1%* in 2004. Inflation is also expected to continue to slow
down in the emerging market countries, to 5.5% from 5.7% in 2004. The IMF expects consumer price growth to slow in
China (to 3% from 3.9% in 2004) and accelerate in CIS countries, including Ukraine and Kazakhstan (inflation is to slow
down in Belarus).
According to the IMF forecast, the average price of Brent, Dubai and WTI crude is to gain 23.2% in dollar terms in 2005
to stand at $46.5 per barrel (in 2004, oil prices went up 30.7%). Consequently, the increase in oil prices in 2005 will remain a
significant factor of inflation in the world, but its influence will gradually become less. The IMF predicts the slowing of
growth in metal prices from 36.4% in 2004 to 14.7% in 2005 and a 4.7% fall in food prices in 2005 (in 2004, they rose
14.5%), while growth in the prices of manufactured goods in the industrialised nations is expected to slow down from 8.8%
in 2004 to 6.2% in 2005.
According to the IMF forecast, the LIBOR on US dollar-denominated 6-month interbank deposits is to rise from 1.8% in
2004 to 3.3% in 2005, but remain unchanged at 0.1% on deposits denominated in the Japanese yen. The LIBOR on euro-
denominated 3-month interbank deposits is expected to rise from 2.1% in 2004 to 2.3% in 2005. The IMF forecasts the dollar
to fall to $1.31 per euro in 2005 as against $1.24 per euro in 2004.
* Source: Eurostat.
** Source: Institute for Economic and Social Studies.
2 Core inflation in the United States is understood as growth in the prices of goods and services included in the consumer goods
basket, excluding food and energy products.
2005 Q1
Bank’s refinancing rate, which has not changed
since July 2003.
The LIBOR rates on US dollar-denominated
deposits with maturity periods from 1 month to 1
year increased by 0.4-0.7 percentage points in
March 2005 as compared with December 2004.
The yield on US government securities with terms
to redemption from 2 to 5 years rose by 0.6-0.7
percentage points and the yield on US government
securities with terms up to 10 years went up by
0.3 percentage points. The LIBOR rates on the
dollar-denominated deposits with all terms and
the yield on US treasury bills with all terms to re-
demption in March 2005 were higher than the
LIBOR rates on the euro-denominated deposits
and the yield on EMU government securities.
The dollar made gains against the major in-
ternational reserve currencies on international fi-
nancial markets in the first quarter of the year due
to US economic growth and the increased yields
on US dollar-denominated financial assets. The
dollar rose 1.8% against the euro in March 2005
as compared with December 2004, 1.5% against
the Japanese yen and 1.4% against the British
pound. It also rallied against the currencies of
some of Russia’s leading trading partners (the
Swiss franc, Swedish krona, Hungarian forint, Slo-
vak koruna, Lithuanian litas, Latvian lat, Estonian
kroon and Kazakhstan tenge). At the same time,
the dollar lost some of its value against the
Belarusian ruble, Ukrainian hryvnia, Polish zloty,
Romanian leu, Turkish lira, South Korean won, In-
dian rupee, Brazilian real and Israeli shekel).
The terms of Russia’s trade with foreign
countries continued to improve as Russian export
prices grew faster than import prices.
The prices of Russia’s major export com-
modities
3 continued to rise on world markets in
2005 Q1. Compared to 2004 Q1, the composite
world price index, adjusted for the structure of
Russian exports and calculated for commodities
accounting for about 70% of their value, regis-
tered 1.37, according to Bank of Russia estimates
(in 2004 Q1, it registered 1.06). In 2005 Q1 (March
2005 against December 2004), it stood at 1.22 as
against 1.07 in 2004 Q1.
Energy price growth accelerated in the first
quarter of the year. Compared to 2004 Q1, the
average price of Urals crude rose 46.4% to $43.1
per barrel (in 2004 Q1, it fell 0.9% year on year).
In March 2005, the price of Urals increased 34.5%
as compared with December 2004 and stood at
$48.3 per barrel. Last March, the price of Urals
reached $50.73 per barrel, the highest level regis-
tered since the beginning of exchange trade
3 Average prices are calculated on the basis of data provided daily by Reuters for oil, Petroleum Argus for petroleum products
(petrol, diesel fuel and fuel oil) and the London Metal Exchange for non-ferrous metals (aluminium, copper and nickel).
Average monthly prices of natural gas and ferrous metal price indices are monitored on the basis of data provided by the World
Bank and other commodities on the basis of data provided by the International Monetary Fund.
4 March 17 closing price, according to Reuters data.
11 2005 Q1
Major Inflation Indicators
On the European market, the price of diesel
fuel rose 54% in 2005 Q1 as compared with the
same period last year, petrol gained 33%, fuel oil
was up 27% and natural gas increased 42% (in
2004 Q1, the price of petrol was up 1.3% on the
same period last year and natural gas 5.4%, while
the price of fuel oil fell 14.1% and diesel fuel
6.5%).
Price growth on the world market for non-
energy products slowed a little in the first quarter
of the year as compared with the same period of
2004, but it was significant nonetheless. The fer-
rous metal price index registered 1.32 as against
1.34 in 2004 Q1. Non-ferrous metal prices rose
13% on average as against 33% in the first quar-
ter of last year. In March 2005, ferrous metal
prices were up 6% on average as compared with
December 2004 (in March 2004, they rose 39%)
and non-ferrous metal prices grew 10% as against
5% a year earlier.
Food prices
5 remained high on world mar-
kets in the first quarter of the year. Compared to
the same period last year, the price of beef rose
15.6%, mutton 4.3%. refined sugar 22% and raw
sugar 40.6%. The first quarter of 2005 saw a ten-
dency towards the slowing of growth in meat and
sugar prices. Compared to December 2004, the
price of beef was up 1.7%, the price of mutton
was down 1.9%, the price of refined sugar rose
7.0% and that of raw sugar was up 4.0% in March
2005.
Owing to favourable external economic
conditions and the improved investment climate
in this country, Russia’s balance of payments re-
mained stable in the first quarter of the year.
It had a current account surplus of $22.4 bil-
lion and a trade surplus of $28.1 billion, which rep-
resents an increase of almost 60% on the first
quarter of last year. The favourable situation on
world commodity markets led to the expansion of
exports, which in the first quarter of the year grew
41% as compared with the same period in 2004
and stood at $52.6 billion. Imports rose 24.8% to
$24.5 billion.
The 2005 Q1 deficit of the balance of ser-
vices increased to $2.9 billion from $2.5 billion a
year earlier and the deficit of the balance of in-
vestment incomes grew from $2.3 billion in the
first quarter of last year to $2.5 billion in the first
quarter of the year.
The capital and financial account deficit (net
of the change in reserves) increased to $4.4 bil-
lion as against $2.6 billion in 2004 Q1.
Residents’ foreign liabilities rose by $12.7 bil-
lion in the first quarter of the year as against $9.7
billion in the same period of 2004. At the same
time, government sector and monetary authority
liabilities contracted by about $4 billion. Liabilities
5 Average prices of raw and refined sugar are calculated on the basis of data provided daily by the London Commodity Exchange.
Average monthly prices of beef, mutton, oranges and bananas are monitored on the basis of data provided by the World Bank
and other goods by the IMF.
2005 Q1
of the private sector, which actively attracted for-
eign capital, expanded by more than $16.6 billion
(in 2004 Q1, they grew by $9.6 billion).
Registered foreign assets (net of foreign
exchange reserves) increased by $17.1 billion in the
first quarter of the year, mainly due to operations
conducted by the private sector, whose assets
expanded by $14.1 billion.
As a result, there was a noticeable decline
in net capital outflow from the private sector
(from $4.2 billion in 2004 Q1 to $900 million in
2005 Q1). Net outflow of capital from the bank-
ing sector contracted from $3.2 billion to $2.9 bil-
lion. As for the non-financial enterprise and
household sector, the net capital outflow of $900
million in 2004 Q1 gave way to a net capital in-
flow of $1.9 billion in 2005 Q1.
The increased inflow of foreign capital to
the private sector was due to the improvement of
the investment climate in Russia, which did not
pass unnoticed by international rating agencies.
In January 2005, Standard & Poor’s raised Russia’s
rating to the investment grade (Moody’s Inves-
tors Service and Fitch Ratings raised Russia’s rat-
ing to the investment grade in 2003 and 2004).
The inflow of foreign exchange to this coun-
try led to the expansion of Russia’s international
reserves, which aggregated $137.4 billion as of
April 1, 2005. Over the period from the beginning
of 2005, Russia’s international reserves increased
by $12.8 billion (in the first three months of 2004,
they grew by $6.5 billion). The international re-
serves accumulated by Russia by the end of the
first quarter of the year would be enough to fi-
nance imports for 13 months (9.6 months a year
earlier).
Domestic Conditions
Industrial output grew 3.9% in 2005 Q1 as
against 7.4% in the same period last year. The
slowdown was the result of the slowing of growth
in the manufacturing sector to 5.3% from 9.6%
in 2004 Q1 and in mining to 2.5% from 8.4%.
Agricultural output was down 0.3% on the
same period last year (in 2004 Q1, it declined
1.4%).
Freight transport turnover increased 2.7% in
2005 Q1 as compared with the same period last
year (in 2004, it expanded 7.4%). The freight
turnover of railway transport grew 2.0%, auto-
mobile transport 9.0% and pipeline transport
3.1%.
Household real disposable money income
rose 3.1% in 2005 Q1 as compared with the same
period last year (in 2004 Q1, it increased 12.0%).
The dynamics of real disposable money income in
January-March 2005 were adversely impacted by
its more significant seasonal month-on-month
reduction in January due to fewer workdays in that
month. Although they were slower than last year,
the rates of growth in real consumer spending re-
mained high. In 2005 Q1, they stood at an esti-
mated 7.8%.
The expansion of domestic consumer and
investor demand continued at the beginning of the
year.
The tendency of nominal consumer ex-
penses to grow faster than incomes, noted last
year, persisted in 2005. The proportion of ex-
penses on consumption in the structure of money
income use in 2005 Q1 expanded as compared
with the same period last year and stood at 74.2%
(in 2004 Q1, it was 70.4%). The share of expenses
on the purchase of goods increased by 2.7 per-
centage points year on year and stood at 56.7%
and the proportion of expenses on services ex-
panded by 1.1 percentage points to 17.5%. These
developments caused consumer demand inflation
to accelerate.
First-quarter growth in real consumer
spending led to the expansion of retail sales, which
increased as fast as in the same period of 2004.
Unlike the situation last year, this year consumer
expenses grew faster than fixed capital invest-
ment.
The conditions stimulating corporate invest-
ment activity remained in 2005 Q1. Fixed capital
investment in that period grew 7.6% on the same
period in 2004 (in January-March 2004, fixed
capital investment increased 13.1%).
The situation on the labour market improved
in 2005 Q1 as compared with the same period last
year. Employment stood at 91.4% of the economi-
cally active population, while 8.6% were classified
as unemployed according to the ILO methodology
(in 2004 Q1, the respective percentages were
90.8% and 9.2%).
Inflation was affected by the price dynam-
ics in industries turning out products that go
straight to the consumer goods market. Growth
13 2005 Q1
Major Inflation Indicators
in production costs was a contributing factor. Es-
timates show that growth in producer prices in
these industries in 2005 Q1 accounted for 0.85
percentage points of growth in the prices of goods
and services included in the core inflation calcula-
tion.
The pressure put on consumer prices by
costs, especially the cost of material resources,
was less in 2005 Q1 than in the same period last
year. Specifically, the increase in the mining price
growth slowed down and approached the rates
of producer price growth in the manufacturing
sector. In March 2005, the mining price index reg-
istered 103.3% on December 2004, while the
manufacturing producer price index stood at
102.8%. In March 2004, the respective percent-
ages were 119.8% and 105.1%. Producer prices in
the mining sector grew at moderate rates, despite
the raising from January 1, 2005, of the tax on the
production of natural gas (from 107 rubles to 135
rubles per 1,000 cubic metres) and oil (from 347
rubles to 419 rubles per tonne, that is, by 20.7%
as against 2.1% from January 1, 2004). The slow-
ing of these prices in 2005 Q1 was due to the re-
duction from February 1, 2005, of the export cus-
toms duty on crude oil and crude petroleum prod-
ucts derived from bituminous minerals from $101
to $83 per tonne.
The producer price index in the production
and distribution of electricity, gas and water (in
March 2005 against December 2004) rose slightly
(by 0.2 percentage points) on the same period of
2004 and stood at 111.7%.
Freight transportation charges increased
13.9% in 2005 Q1 as against 2.9% in the same
period of 2004. Railway transport fares rose 8.8%
as against 12.6% in the same period last year.
In that situation, as Rosstat data show, the
growth rate in profit net of loss of companies in
the manufacturing sector was virtually the same
as in the mining sector in January-February 2005
(143.4% and 142.4% respectively) and in the pro-
duction and distribution of electricity, gas and
water (126.6%).
At the same time, price formation in the
manufacturing sector, which is largely oriented to
consumer demand, was continually affected by
competition, including competition put up by im-
porters. As a result, producer price growth in the
production of foodstuffs, including beverages, to-
bacco, textiles and clothing, leather, leather goods
and footwear was slower than in the manufac-
turing sector as a whole in 2005 Q1. The output of
textiles and clothing and leather, leather goods
and footwear in 2005 Q1 was lower than in the
same period last year. According to Rosstat’s data,
profits (profit net of loss) of the companies pro-
ducing foodstuffs, including beverages, and to-
bacco products in January 2005 declined by 2.6
times year on year and profits of the companies
manufacturing leather, leather goods and foot-
wear fell by 2.2 times. Unlike the situation in 2004,
the production of textiles and sown garments was
loss-making.
Producer prices in industry rose 4.3% in
March 2005 as compared with December 2004 (a
2005 Q1
8.9% increase was registered in the same period
of 2004). One reason for such relatively small
growth in industrial producer prices in 2005 Q1 was
the reduction of mining costs by 5.8% in Janu-
ary-February (the cost of fuel and energy produc-
tion fell by 7.7%).
The most significant growth in producer
prices in the manufacturing sector in 2005 Q1 was
registered in the production of machinery and
equipment (4.6% as against 4.2% in 2004 Q1) and
rubber and plastic goods (5.7% as against 0.8%).
In some manufacturing industries, whose
output goes to the consumer goods market, there
was no acceleration of producer prices at the be-
ginning of the year as compared with the begin-
ning of 2004. In the food industry, for example,
producer price growth slowed to 1.1% in March
2005 as compared with December 2004 as against
4.5% in the same period of 2004, 1.4% as against
4.7% in the textile and garment industry and 2.6%
as against 2.7% in the production of leather,
leather goods and footwear.
According to Rosstat’s preliminary data, real
wage rose 7.4% in 2005 Q1 year on year (in 2004
Q1, it increased 15.0%). At the same time, real
pension dynamics still lag GDP growth and in this
sense have not yet reached the 1997 Q4 level. Real
pension increased 6.6% in 2005 Q1 as compared
with the same period last year (in 2004 Q1, real
pension grew 7.0%).
In 2005 Q1, the average monthly nominal
imputed wage rose 21.4% year on year and stood
at 7,560 rubles (in January-March 2004, it in-
creased 27.3%).
According to the Institute of the Economy
in Transition (IEPP), in 2005 Q1, the inflationary
expectations of managers of leading industrial en-
terprises were slightly lower than in the same pe-
riod of 2004. In January-March 2005, growth in
selling prices was expected by 28-38% of respon-
dents as against 33-37% in the same period of
2004. In January 2005, this ratio stood at 38%, in
February 33% and in March 28%. These figures
testify to the tendency towards the reduction of
inflationary expectations due to the fact that the
peak of price growth was in the first few months
of 2005 and producers do not plan any price in-
creases soon.
15 2005 Q1
Quantitative and Qualitative Monetary Indicators
Exchange Rate
The favourable external economic condi-
tions of the first quarter of the year stimulated
the inflow of foreign exchange earnings to the
domestic market. However, it is the change of the
euro/dollar rate on world currency markets that
continued to exert the main influence on the ruble
exchange rate dynamics. Although there was no
single trend in the correlation between these two
currencies, the first quarter of the year saw an end
to the euro’s massive rally registered in the last
months of 2004. In that situation, the Russian
foreign exchange market registered a slight rise
of the US dollar against the ruble (by 0.4%) and a
significant decline (by almost 5%) of the euro
against the ruble. As a result, as of April 1, 2005,
the dollar was worth 27.8548 rubles and the euro
36.0274 rubles.
January saw the ruble slide against the US
dollar by 1.3%, but in February the ruble recov-
ered and gained 1.5%. In March, the dollar started
to rally against the ruble again and the Russian
currency lost 0.6% of its value. The average
monthly dollar/ruble rate in January was 27.94
rubles to the dollar, in February 27.97 rubles and
in March 27.62 rubles.
After the euro’s major rise on the Russian
foreign exchange market in 2004 Q1, the euro fell
against the ruble in the first quarter of the year as
the European currency lost against the dollar.
January saw the euro lose 3.3% against the ruble,
in February the euro gained slightly (0.4%), but
in March it fell 1.9%. The average monthly euro/
ruble rate stood at 37.05 rubles to the euro in Janu-
ary, 36.39 rubles in February and 36.49 rubles in
March.
On February 1, 2005, the Bank of Russia be-
gan to use as the operating benchmark of its ex-
change rate policy a currency basket filled by 10%
with euros and 90% with dollars. On March 15, it
changed the structure of this two-currency bas-
ket, increasing the euro’s share to 20% and re-
ducing the dollar’s share to 80%. The adoption of
this benchmark signified the lessening of the
intraday volatility of the ruble’s rate against for-
eign currencies of importance for Russia.
In 2005 Q1, the ruble continued to rally
against the dollar and euro in real terms and in
March the real ruble/dollar rate index registered
4.7% on December 2004 and real ruble/euro rate
index 6.8%.
The significant increase in the ruble’s real
effective rate in 2005 Q1 (5.1% compared to De-
cember 2004) was due to Russia’s economic
growth and large trade surplus (the ruble’s real
effective rate rose 4.7% during 2004). The dy-
Quantitative and Qualitative Monetary Indicators
2005 Q1
namics of this indicator in 2005 Q1 were also seri-
ously affected by the inflation rate (5.3% as
against 3.4% in 2004 Q4).
As there was no single trend in the correla-
tion between the US and European currencies on
international foreign exchange markets in 2005
Q1, the dollar/ruble and euro/ruble rates changed
different ways, creating uncertainty about their
future dynamics among Russian market partici-
pants.
Interest Rates
The average price of short-term funds, set
by the Bank of Russia interest rate band, did not
change much in 2005 Q1 as compared with the
previous quarter. The high level of commercial
banks’ ruble liquidity and relatively stable nominal
rate of the ruble against the dollar stimulated fi-
nancial market participants’ interest in ruble-de-
nominated assets. As inflation ran at fairly rapid
rates, there was no single trend in interest rate
dynamics in January-March.
The Bank of Russia made no changes in in-
terest rates on the deposit operations conducted
on standard terms in 2005 Q1. The lower limit of
the interest rate band was set by the interest rate
on tom-next deposits, which accounted for the
largest share of the funds taken from credit insti-
tutions on deposit (the interest rate stood at 0.5%
p.a.). The upper limit of the band was set by the
Bank of Russia overnight loan rate, which also re-
mained unchanged at 13% p.a. The average
weighted interest rates at deposit auctions in 2005
Q1 were a little higher than in the previous quarter
at 1.95% p.a. on 4-week deposits and 3.18% p.a.
on 3-month deposits. The average weighted yield
on Bank of Russia bonds (OBR) ranged from 3.8%
p.a. to 4.7% p.a.
In 2005 Q1, money market interest rates and
interest rates on commercial bank operations re-
mained within the Bank of Russia interest rate
band. The MIACR on overnight ruble loans on the
interbank market in that period varied between
0.65% and 2% p.a. (in the previous quarter, it
ranged from 1.08% to 1.15% p.a.).
The market interest rate on loans extended
to non-financial enterprises for all terms rose sig-
nificantly in January month on month (by 0.9 per-
centage points to 10.9% p.a.). In the subsequent
months, this rate fell slightly and in March it stood
at 10.7% p.a. As for the term structure of interest
rates, 6- to 12-month loans remained the most
expensive credit resources for enterprises in Janu-
ary and February and in March it was loans ex-
tended for 1-3 years. Compared to 2004 Q4, the
price of 6- to 12-month loans rose by 0.1 percent-
age points in 2005 Q1 and the price of 1- to 3-year
loans increased by 2.5 percentage points.
The most significant decline in interest rates
in February and March was registered in loans ex-
tended for terms over 3 years (it fell from 14.4%
p.a. in January to 10.3% p.a. in March). As a re-
sult, the price of loans in this term category was
lower than the price of loans in any other term
category in 2005 Q1 (except interest rates on loans
with terms up to 1 month). This fact serves to show
17 2005 Q1
Quantitative and Qualitative Monetary Indicators
that market participants anticipate a decline in in-
terest rates on loans in the medium and long term.
High demand for loans in the household sec-
tor and little competition allow banks to keep in-
terest rates on loans to individuals higher than on
loans to enterprises. In 2005 Q1, the interest rate
on loans extended to the household sector for all
terms declined to 20.0% p.a. as against 20.5% p.a.
in December 2004. Compared to 2004 Q4, the
average interest rate on loans extended to house-
holds for all terms fell by 0.7 percentage points in
2005 Q1, while the biggest decrease (by 2.7 per-
centage points) was registered in interest rates on
1- to 3-month loans.
Interest rates on household time deposits
last January were higher than in December 2004,
but in February-March they slipped by 0.45 per-
centage points, staying higher than in December
2004, however. The average interest rate on
household time deposits rose by half a percent-
age point in 2005 Q1 as compared with 2004 Q1
and stood at 8.9% p.a. As was the case in the pre-
vious quarter, the highest yield was on deposits
with terms from 6 months to 1 year, although their
average quarterly yield fell slightly (by 0.1 percent-
age points). The most significant reduction (by 1.4
percentage points) in average quarterly interest
rates in 2005 Q1 as compared with the previous
quarter was registered in 1- to-7-day deposits and
the biggest increase (by 0.8 percentage points)
in deposits with terms from 1 year to 3 years.
In 2005 Q1, the yield curve on banks’ lend-
ing operations retained its rising slope but it be-
came gentler due to the evening out of interest
rates on deposits with terms longer than 3 months.
The positive incline in the up to 90 days sector in-
creased a little. The term structure of interest rates
on banks’ lending operations shows that market
participants’ inflationary expectations remain
moderate.
A minor upward trend in yield dynamics pre-
vailed on the federal loan bond (OFZ) market in
2005 Q1. In January-March, OFZ bond yields fluc-
tuated within 0.18 percentage points and by the
end of the period the government bond market
portfolio effective indicator gained 0.2 percent-
age points as compared with the end of Decem-
ber 2004 and stood at 8.0% p.a. Compared to
2004 Q1, the average quarterly effective market
2005 Q1
portfolio indicator rose by 0.1 percentage points
in 2005 Q1 and stood at 7.9% p.a.
OFZ yields remained in direct proportion
with the bond maturities in the period under re-
view. The minor yield fluctuations in the first quar-
ter of the year had no effect on the shape of the
OFZ bond yield curve, which retained its rising
slope in the up to 8 years section. The over 8 years
section was almost flat due to the low liquidity of
these instruments and because it was impossible
to precisely evaluate the risk involved in investing
for such a long period of time. By the end of
March, the yield curve became a little steeper as
the yields on the shortest-dated government
bonds fell. No inflation risk premium was included
in the price of short-term government bonds. The
medium- and long-term inflationary expectations
of market participants were unchanged from the
previous quarter. The inflation risk of investing in
medium-term government bonds was moderate.
As for the risk of investing in papers with terms to
redemption longer than 5 years, market partici-
pants determine it on the basis of the evaluation
of the risk involved in investing in medium-term
issues.
The volatility of price indicators for most of
the ruble-denominated financial market instru-
ments remained moderate in the first quarter of
the year. The interest rate structure by instrument
remained balanced. The yield curves for the key
financial instruments had a normal shape, which
means that the yield on financial instruments was
19 2005 Q1
Quantitative and Qualitative Monetary Indicators
in direct proportion with their maturity periods
amid the relatively stable short- and medium-term
inflation expectations of Russian financial market
participants.
The long-term inflationary expectations are
hard to evaluate with certainty owing to the small
scale of operations with long-dated instruments,
but the fact that the yield curves on the longest-
term instruments were either almost flat or de-
scending indicates that the prevailing sentiment
on the market is that interest rates will fall in the
long run.
Money Supply
Annualised M2 growth slowed to 30.8% by
the end of the first quarter of the year from 35.8%
at the beginning of the year. In January-March
2005, M2 expanded 2.6%, slightly lower than the
first-quarter average increase since 1999. Al-
though the tendency towards the slowing of
annualised growth in the money supply continued
in the first two months of the year, in March 2005,
M2 grew faster than in March 2004. Taking into
consideration the April dynamics, this may indi-
cate an end to this tendency and the emergence
of an additional factor of uncertainty about core
inflation at the end of 2005 and the beginning of
2006.
The gap between the rates of growth in M2
and GDP
1, which narrowed significantly last year,
further contracted slightly in the first quarter of
the year. Its contraction contributes to the less-
ening of the inflationary pressure if the dynamics
of the velocity of money are economically justi-
fied. Overall, the first-quarter reduction of the
velocity of money by 2.3% (as against 5.6% in the
same period of 2004) had a balancing effect on
the correlation between the expansion of the
money supply and economic growth. At the same
time, the slight slowing in reduction of the veloc-
ity of money, registered since the second half of
2004, continues and at present the dynamics of
the velocity of money are deviating from the me-
dium-term trend due to some factors, such as in-
stability of the demand for the national currency,
the slowing of the de-dollarisation of the economy
and changes in the structure of the money sup-
ply.
The analysis of the dynamics of the gap be-
tween the rates of growth in GDP and M2X, a
broader monetary aggregate comprising eco-
nomic agents’ non-cash foreign currency funds,
indicates that monetary factors may put more
pressure on inflation in the coming period. How-
ever, this will only happen if the process of de-
dollarisation, which affects the correlation be-
tween M2 and M2X growth, continues. Since
2003, GDP growth has lagged M2 growth more
significantly than M2X growth and in the past
half-year the gap between GDP and M2X growth
rates has widened.
The money aggregate in the monetary sur-
vey definition (similar to the M1 aggregate), which
comprises the most liquid transactional compo-
nents of the money supply, reflects the economic
situation and liquidity preferences. In 2005 Q1, its
dynamics were chiefly affected by the slowing of
growth of the cash component of this aggregate
(M0 cash growth slowed from the annualised
33.8% to 27.1% in January-March 2005).
Overall, following the seasonal pattern of
the previous few years, cash contracted 3.5% in
2005 Q1 (in 2004 Q1, it expanded 1.6%). House-
hold demand for foreign currency, which rose
compared to 2004 Q1, and the slowing of growth
in household real money income were the main
factors behind the change of the M0 aggregate
in 2005 Q1.
As was the case in the previous years, the
M0 aggregate expanded significantly in Decem-
ber 2004 and its growth was followed by a surge
of consumer prices in January 2005. In December
2004, cash growth was faster than in December
2003 (15.2% as against 14.5%), largely due to the
fact that budget expenditures that month in-
creased more than in December 2003. According
to monetary survey data, almost 290 billion rubles
were written down from the government accounts
with the Bank of Russia last December, far more
than in December 2003 (about 125 billion rubles).
At the same time, December 2004 consumer
spending grew faster than in December 2003 and
this could also put more significant upward pres-
sure on inflation dynamics in January 2005.
1 This gap characterises the part of money supply growth that exceeds the amount necessary for the financing of the expanded
volume of transactions. Its increase may testify to the inflationary pressure of money supply growth on price dynamics.
2005 Q1
The non-cash component of M1 is com-
prised by about 80% of non-financial enterprise
sector funds and its growth reflects this sector’s
increased demand for money to conduct transac-
tions and service the payment turnover. In 2005
Q1, funds in accounts and demand deposits grew
faster than in the same period last year. The
annualised rate of growth (month on month of
the previous year) in non-cash transaction money
was virtually unchanged at 27-28%, while the rate
of cash growth slowed down.
As cash and funds in transactional accounts
contracted, the annualised rate of growth in the
money aggregate in the monetary survey defini-
tion slowed from 30.5% as of the beginning of
the year to 27.4% as of April 1, 2005. The rates of
growth in quasi-money, the aggregate compris-
ing less liquid components of the money supply,
used by economic agents as savings, in 2005 Q1
were slower than last year but far surpassed the
money aggregate dynamics. The slowing of the
annualised rate of growth in quasi-money by April
2005 (to 35.7% from 37.6% at the beginning of
the year) was less significant than the slowing of
the money aggregate and it was due to the accel-
erated growth of the foreign currency component
of quasi-money. Foreign currency deposits in-
creased faster than in the same period last year
and their growth surpassed that of the ruble-de-
nominated time deposits.
Instability of economic agents’ currency
preferences and the corresponding fluctuations in
21 2005 Q1
Quantitative and Qualitative Monetary Indicators
the demand for rubles and foreign exchange,
which stimulated the reciprocal flow of ruble and
foreign currency funds, were among the factors
that determined the monetary aggregate dynam-
ics in 2005 Q1. That is why the slowing of the an-
nual rates of growth in the M2X aggregate (from
33.7% as of January 1, 2005, to 31.2% as of April
1, 2005) was less significant than the slowing of
growth in the ruble aggregates (M0, M1 and M2),
while the dynamics of M2Y aggregate, which
comprises cash and non-cash foreign currency
assets of non-financial agents, had a climbing
path.
The accelerated growth of foreign currency
deposits in 2005 Q1, despite the contraction of
cash foreign exchange, brought about an upward
trend in the dynamics of the notional broad ag-
gregate M2Y, which increased by an annualised
25.1% as of April 1, 2005, as against 24.3% as of
the beginning of the year and 19.9% as of the
same date in 2004.
The dollarisation coefficient, which is a mea-
sure of the foreign currency component of the
money supply in the monetary survey definition
(M2X), rose by a percentage point to 18.6% in
2005 Q1, whereas in the same period of 2004 it
fell by 0.6 percentage points. At the same time,
the ruble component remained the largest com-
ponent of quasi-money (62.1% as of April 1, 2005,
and 61.8% as of January 1, 2005).
The slowing of the Russian economy’s de-
dollarisation is also reflected in the changes in the
2005 Q1
structure of the M2Y aggregate. In 2005 Q1, the
share of the foreign currency component of this
notional broad aggregate expanded by 0.2 per-
centage points, mainly as a result of growth in the
share of foreign currency deposits. At the same
time, the share of all foreign currency funds in the
broad aggregate M2Y in 2005 Q1 was smaller than
in the same period last year.
Enterprise and household sector funds at-
tracted by banks in rubles and foreign currency,
which are the principal source of growth in lend-
ing, expanded by an annualised 32.8% as of
April 1, 2005, lagged growth in credit to the real
sector, which stood at 43.8% as of the same date.
At the same time, the increase in banking sector
claims on the non-financial sector was not a ma-
jor source of growth in the money supply in 2005
Q1: in January-March 2005, it equalled only 57.7
billion rubles (it was four times this amount in
2004 Q1). The dynamics of monetary indicators
were determined above all by the continued ex-
pansion of banking sector net foreign assets,
caused primarily by the Bank of Russia purchases
of foreign currency on the domestic market.
The broad monetary base contracted 5.5%
in 2005 Q1, whereas in 2004 Q1 it expanded 1.2%.
The ratio of credit institutions’ funds in correspon-
dent accounts with the Bank of Russia decreased
during January-March from 20.4% to 14.5% (in
the same period last year, it contracted from
15.9% to 12%). The ratio of credit institutions’
funds absorbed by the Bank of Russia by conduct-
ing operations with Bank of Russia bonds and op-
erations to repurchase securities and by taking
banks’ funds on deposit expanded from 4.5% to
9.6% of the monetary base and taking into ac-
count credit institutions’ required reserves, from
9.6% to 15.5%.
Significant growth in funds in general gov-
ernment accounts, caused by the expansion of the
federal government’s Stabilisation Fund, had a
major restraining effect on month supply growth.
In 2005 Q1, the Stabilisation Fund grew faster than
in 2004 Q4 and in 2004 Q1 (246.2 billion rubles as
against 172.5 billion rubles and 142.6 billion rubles
respectively).
23 2005 Q1
Statistical Addendum
Statistical Addendum
Consumer prices by group of goods and services (month on month, %)
Monthly inflation Core inflation Food price growth
Food price growth
net of vegetable
prices
Vegetable and
fruit price growth
Non-food price
growth
Service price
growth
January 2.4 1.2 2.5 1.3 13.1 1.1 4.4
February 1.6 0.9 1.2 0.8 4.1 0.9 4.2
March 1.1 0.7 1.0 0.6 3.9 0.8 1.7
April 1.0 0.6 1.0 0.5 4.2 0.6 1.8
May 0.8 0.6 0.7 0.4 2.5 0.6 1.5
June 0.8 0.6 0.8 0.6 2.3 0.5 1.2
July 0.7 0.7 0.4 0.7 -1.8 0.5 1.9
August -0.4 0.7 -1.4 0.8 -17.2 0.6 0.7
September 0.3 1.1 -0.2 1.1 -11.2 0.9 0.9
October 1.0 1.4 1.1 1.8 -5.6 1.0 0.8
November 1.0 1.1 1.2 1.3 1.0 0.8 0.4
December 1.1 1.0 1.5 1.2 4.1 0.6 0.9
Full year (December on
December
12.0 11.2 10.2 11.8 -4.2 9.2 22.3
January 1.8 0.9 1.6 1.3 5.5 0.5 4.1
February 1.0 0.8 1.1 1.1 1.5 0.4 1.6
March 0.8 0.7 1.1 0.9 2.8 0.4 0.6
April 1.0 0.8 0.8 1.0 -0.6 0.6 2.0
May 0.7 0.6 0.4 0.5 -0.7 0.8 1.4
June 0.8 0.5 0.8 0.4 4.8 0.7 0.9
July 0.9 0.8 1.0 1.0 1.5 0.6 1.3
August 0.4 0.7 0.1 0.8 -6.3 0.5 1.0
September 0.4 0.9 0.0 0.9 -9.0 0.9 0.6
October 1.1 1.3 1.4 1.7 -2.7 0.7 1.2
November 1.1 1.1 1.5 1.5 2.2 0.7 0.8
December 1.1 1.0 1.7 1.4 5.4 0.4 1.0
Full year (December on
December
11.7 10.5 12.3 13.1 3.3 7.4 17.7
January 2.6 0.9 1.4 1.1 5.1 0.4 8.8
February 1.2 0.7 1.4 0.9 6.1 0.4 2.2
March 1.3 0.8 2.1 1.1 11.2 0.4 1.2
2005 Q1
Consumer prices by group of goods and services
(total for quarter, %)
Inflation Core inflation Food price growth
Food price growth
net of vegetable
prices
Vegetable and fruit
price growth
Non-food price
growth Service price growth
Q1 5.4 2.8 4.2 2.1 22.6 2.7 14.5
Q2 3.4 1.5 3.0 0.7 20.1 3.1 5.1
Q3 1.2 2.3 -1.4 1.8 -21.6 2.1 7.3
Q4 4.3 3.2 4.9 3.6 15.5 2.5 5.5
Q1 5.2 2.8 4.8 2.8 22.4 2.8 10.6
Q2 2.6 1.8 2.5 1.6 9.3 1.8 4.5
Q3 0.6 2.5 -1.2 2.6 -27.8 1.9 3.6
Q4 3.1 3.6 3.9 4.3 -0.8 2.4 2.1
Q1 3.5 2.4 3.8 3.2 10.1 1.4 6.4
Q2 2.5 1.8 2.1 1.9 3.5 2.0 4.3
Q3 1.8 2.4 1.2 2.7 -13.4 2.0 3.0
Q4 3.4 3.5 4.7 4.7 4.8 1.8 3.0
Q1 5.3 2.4 4.9 3.1 24.0 1.1 12.6
Consumer prices by group of goods and services
(since start of year on accrual basis, %)
Monthly inflation Core inflation Food price growth
Food price growth
net of vegetable
prices
Vegetable and fruit
price growth
Non-food price
growth Service price growth
January 2.4 1.2 2.5 1.3 13.1 1.1 4.4
February 4.1 2.1 3.7 2.2 17.8 2.0 8.8
March 5.2 2.8 4.8 2.8 22.4 2.8 10.6
April 6.2 3.4 5.8 3.3 27.6 3.5 12.6
May 7.1 4.0 6.5 3.8 30.8 4.1 14.2
June 7.9 4.7 7.4 4.4 33.7 4.6 15.6
July 8.7 5.4 7.8 5.1 31.4 5.1 17.8
August 8.3 6.2 6.3 6.0 8.7 5.7 18.7
September 8.6 7.3 6.1 7.1 -3.4 6.6 19.7
October 9.7 8.9 7.3 9.1 -8.9 7.7 20.7
November 10.8 10.1 8.6 10.4 -7.9 8.6 21.2
December 12.0 11.2 10.2 11.8 -4.2 9.2 22.3
January 1.8 0.9 1.6 1.3 5.5 0.5 4.1
February 2.8 1.7 2.8 2.3 7.1 0.9 5.8
March 3.5 2.4 3.8 3.2 10.1 1.4 6.4
April 4.6 3.2 4.7 4.2 9.5 2.0 8.5
May 5.3 3.8 5.2 4.8 8.7 2.8 10.0
June 6.1 4.3 6.0 5.2 13.9 3.4 11.0
July 7.1 5.1 7.1 6.2 15.6 4.0 12.5
August 7.6 5.8 7.2 7.1 8.3 4.6 13.6
September 8.0 6.8 7.2 8.0 -1.4 5.5 14.3
October 9.3 8.1 8.7 9.9 -4.0 6.3 15.7
November 10.5 9.3 10.4 11.5 -1.9 7.0 16.6
December 11.7 10.5 12.3 13.1 3.3 7.4 17.7
January 2.6 0.9 1.4 1.1 5.1 0.4 8.8
February 3.9 1.7 2.8 2.0 11.5 0.7 11.2
March 5.3 2.4 4.9 3.1 24.0 1.1 12.6
25 2005 Q1
Statistical Addendum
INFLATION GROWTH STRUCTURE (in percentage points)
Inflation growth over period since start of year due to changes in prices
by group of goods and services
Foodstuffs* Non-food products Paid services Vegetables and fruit Inflation over
period, % Core inflation Non-core inflation**
January 0.7 0.3 0.8 0.7 2.4 1.0 1.4
February 1.1 0.5 1.5 0.9 4.1 1.7 2.4
March 1.4 0.8 1.8 1.2 5.2 2.3 2.9
April 1.7 1.0 2.2 1.4 6.2 2.8 3.4
May 1.9 1.1 2.4 1.6 7.1 3.3 3.8
June 2.2 1.3 2.7 1.8 7.9 3.8 4.1
July 2.6 1.4 3.1 1.6 8.7 4.4 4.3
August 3.0 1.6 3.2 0.5 8.3 5.0 3.2
September 3.6 1.8 3.4 -0.2 8.6 6.0 2.7
October 4.5 2.1 3.5 -0.5 9.7 7.2 2.5
November 5.2 2.4 3.6 -0.4 10.8 8.2 2.6
December 5.9 2.5 3.8 -0.2 12.0 9.1 2.9
January 0.6 0.1 0.7 0.3 1.8 0.8 1.0
February 1.2 0.2 1.0 0.4 2.8 1.4 1.4
March 1.6 0.4 1.1 0.5 3.5 2.0 1.6
April 2.1 0.5 1.4 0.5 4.6 2.6 1.9
May 2.4 0.8 1.7 0.4 5.3 3.1 2.2
June 2.6 0.9 1.9 0.7 6.1 3.5 2.6
July 3.1 1.1 2.1 0.8 7.1 4.2 2.9
August 3.5 1.3 2.3 0.4 7.6 4.7 2.8
September 4.1 1.5 2.5 -0.1 8.0 5.5 2.5
October 5.0 1.7 2.7 -0.2 9.3 6.6 2.7
November 5.8 1.9 2.9 -0.1 10.5 7.6 2.9
December 6.5 2.0 3.0 0.2 11.7 8.5 3.3
January 0.5 0.1 1.8 0.2 2.6 0.7 1.9
February 0.8 0.2 2.3 0.5 3.9 1.3 2.6
March 1.3 0.4 2.5 1.1 5.3 1.9 3.3
* Excluding vegetables and fruit.
** Growth in the prices of goods and paid services excluded from the calculation of the base consumer price index.
2005 Q1
Monthly inflation growth due to changes in prices
by group of goods and services
Foodstuffs* Non-food products Paid services Vegetables and fruit Inflation over
period, % Core inflation Non-core inflation**
January 0.7 0.3 0.8 0.7 2.4 1.0 1.4
February 0.4 0.2 0.7 0.2 1.6 0.7 0.9
March 0.3 0.2 0.3 0.2 1.1 0.6 0.5
April 0.3 0.2 0.3 0.3 1.0 0.5 0.5
May 0.2 0.2 0.3 0.2 0.8 0.4 0.4
June 0.3 0.1 0.2 0.1 0.8 0.5 0.3
July 0.3 0.1 0.4 -0.1 0.7 0.5 0.2
August 0.4 0.1 0.1 -1.1 -0.4 0.6 -1.0
September 0.5 0.2 0.2 -0.6 0.3 0.9 -0.6
October 0.9 0.3 0.1 -0.3 1.0 1.2 -0.1
November 0.6 0.2 0.1 0.0 1.0 0.9 0.1
December 0.6 0.2 0.2 0.2 1.1 0.8 0.3
January 0.6 0.1 0.7 0.3 1.8 0.8 1.0
February 0.5 0.1 0.3 0.1 1.0 0.6 0.4
March 0.4 0.1 0.1 0.1 0.8 0.6 0.2
April 0.5 0.2 0.4 0.0 1.0 0.6 0.3
May 0.3 0.2 0.2 0.0 0.7 0.5 0.2
June 0.2 0.2 0.2 0.3 0.8 0.4 0.4
July 0.5 0.1 0.2 0.1 0.9 0.6 0.3
August 0.4 0.2 0.2 -0.4 0.4 0.5 -0.1
September 0.5 0.3 0.1 -0.5 0.4 0.7 -0.3
October 0.9 0.2 0.2 -0.1 1.1 1.0 0.2
November 0.7 0.2 0.1 0.1 1.1 0.9 0.2
December 0.6 0.1 0.1 0.3 1.1 0.8 0.3
January 0.5 0.1 1.8 0.2 2.6 0.7 1.9
February 0.4 0.1 0.5 0.3 1.2 0.6 0.7
March 0.4 0.1 0.2 0.6 1.3 0.6 0.7
* Excluding vegetables and fruit.
** Growth in prices of goods and paid services excluded from the calculation of the base consumer price index.
27 2005 Q1
Statistical Addendum
CONTRIBUTION TO INFLATION GROWTH (%)
Contribution to inflation growth over period since start of year
by group of goods and services
Foodstuffs* Non-food products Paid services Vegetables and fruit Core inflation Non-core inflation**
January 27.5 12.4 31.6 28.5 40.6 59.4
February 26.7 13.4 37.1 22.8 41.8 58.2
March 27.3 14.9 35.3 22.5 44.2 55.8
April 27.0 15.3 34.7 23.1 44.9 55.1
May 26.9 15.9 34.5 22.7 46.1 53.9
June 28.1 16.0 33.7 22.2 47.9 52.1
July 29.7 16.2 35.2 18.8 50.2 49.8
August 36.5 19.1 38.9 5.5 60.7 39.3
September 41.6 21.2 39.3 -2.1 69.1 30.9
October 46.7 21.6 36.4 -4.7 74.3 25.7
November 48.5 21.7 33.6 -3.8 76.3 23.7
December 49.1 21.0 31.7 -1.8 75.9 24.1
January 35.8 7.6 40.3 16.3 43.2 56.8
February 42.3 9.0 35.4 13.3 50.0 50.0
March 45.0 10.3 30.2 14.5 55.3 44.7
April 46.1 11.7 31.5 10.7 57.5 42.5
May 45.3 14.2 32.2 8.5 58.5 41.5
June 42.3 15.3 30.7 11.8 57.2 42.8
July 43.5 15.3 29.9 11.3 58.8 41.2
August 47.0 16.5 30.8 5.7 62.6 37.4
September 50.9 19.1 30.9 -0.9 68.4 31.6
October 54.2 18.7 29.3 -2.3 70.9 29.1
November 55.4 18.3 27.2 -1.0 72.0 28.0
December 55.7 17.1 25.7 1.5 72.0 28.0
January 17.5 4.9 68.3 9.3 28.0 72.0
February 21.6 6.3 58.0 14.0 33.3 66.7
March 24.6 6.8 47.4 21.3 36.6 63.4
* Excluding vegetables and fruit.
** Growth in prices of goods and paid services excluded from the calculation of the base consumer price index.
2005 Q1
Contribution to monthly inflation growth
by group of goods and services
Foodstuffs* Non-food products Paid services Vegetables and fruit Core inflation Non-core inflation**
January 27.5 12.4 31.6 28.5 40.6 59.4
February 25.5 15.0 45.0 14.6 43.7 56.3
March 29.7 20.3 28.3 21.7 53.0 47.0
April 25.5 17.2 31.6 25.7 48.7 51.3
May 25.9 21.2 33.1 19.8 55.3 44.7
June 38.4 16.6 26.9 18.1 62.7 37.3
July 46.8 18.9 50.7 -16.4 74.7 25.3
August Estimate impossible for negative value
September 164.8 72.9 50.5 -188.3 270.6 -170.6
October 86.6 25.6 14.2 -26.4 114.6 -14.6
November 63.8 23.3 8.4 4.5 94.1 5.9
December 53.8 14.2 15.1 16.9 71.7 28.3
January 35.8 7.6 40.3 16.3 43.2 56.8
February 53.5 11.5 26.8 8.1 61.8 38.2
March 54.6 14.8 11.5 19.2 74.2 25.8
April 49.6 17.1 36.3 -2.9 65.1 34.9
May 40.1 29.6 35.6 -5.2 64.9 35.1
June 22.7 22.7 21.0 33.7 48.2 51.8
July 50.3 15.8 25.3 8.8 68.1 31.9
August 101.5 35.8 46.0 -83.3 122.3 -22.3
September 117.0 63.9 34.1 -115.0 164.9 -64.9
October 75.6 16.9 19.0 -11.5 86.8 13.2
November 63.4 15.6 12.0 9.0 79.4 20.6
December 56.7 7.1 13.1 23.1 71.7 28.3
January 18.1 4.6 67.6 9.7 28.0 72.0
February 30.9 8.4 35.9 24.7 44.4 55.6
March 33.4 7.4 16.4 42.8 46.0 54.0
* Excluding vegetables and fruit.
** Growth in prices of goods and paid services excluded from the calculation of the base consumer price index.
29 2005 Q1
Statistical Addendum
2005 Q1
31 2005 Q1
Statistical Addendum
2005 Q1
33 2005 Q1
Statistical Addendum
2005 Q1
35 2005 Q1
Statistical Addendum
2005 Q1
© The Central Bank of the Russian Federation, 2005
Research and Information Department