CBR Quarterly Inflation Review - Q2 2005
Central bank: cbr | Type: quarterly_review | Date: 2005-06-30

THE CENTRAL BANK
OF THE RUSSIAN FEDERATION
(BANK OF RUSSIA)
Quarterly
Inflation
Review
2005 Q2
Research and Information Department
Introduction........................................................... 1
Major Inflation Indicators .......................................... 3
Quantitative and Qualitative Monetary Indicators .......... 17
Statistical Addendum ............................................. 25
1 2005 Q2
Statistical Addendum
Consumer price inflation was higher in the
first half of 2005 than in the same period last year.
Consumer price growth acceleration was attrib-
utable to factors outside the sphere of influence
of the Bank of Russia’s short-term monetary
policy. This acceleration was largely due to a rapid
growth in the prices of some foodstuffs (meat
and fish products), the continued rise of world
energy prices and a considerable increase in the
prices of paid services to households, especially
federally and regionally regulated prices. Another
factor was a significant rise in vegetable and fruit
prices.
As in the same period last year, household
consumer spending continued to grow rapidly in
January-June 2005. As employment grew, de-
mand exerted upward pressure on consumer
prices.
The prices of meat (especially beef and pork
prices) continued to rise significantly in 2005. The
same situation was observed in 2004. In the first
half of 2005, the growth of poultry, fish and sea-
food prices accelerated considerably. Some for-
eign countries, for example, the USA, also regis-
tered an accelerated growth of meat prices on the
consumer market.
Despite growth in world energy prices in the
first half of 2005, domestic petrol prices rose in-
significantly as compared with the previous year.
The Bank of Russia’s exchange rate policy
had a positive effect on core inflation. As the dol-
lar appreciated against the euro on the interna-
tional forex market, the ruble’s nominal effective
rate against the currencies of Russia’s major trade
partners rose 2.7% in June 2005 as compared with
December 2004.
The growth of money supply accelerated in
annual terms from March 2005. But the existing
lags prevented this factor from exerting extra
pressure on core inflation in 2005 Q2. However,
if this trend continues to persist in money supply
dynamics, monetary inflation will intensify and
this factor can worsen the start conditions of the
year 2006. That is why, it is extremely important
for ruble supply growth to slow down to achieve
the desired level of core inflation both this year
and next year.
Introduction
In the second half of 2005, core inflation
will be affected (other conditions being un-
changed) by the unsteady money supply observed
in the last months of the previous year and in the
first half of the year, foreign exchange rate dy-
namics and large budget non-interest expendi-
tures compared to the first half of the year. At the
same time, the budget will keep its sterilising func-
tion.
The monetary accommodation measures
along with the stronger role of the Stabilisation
Fund of the Russian Federation (hereinafter re-
ferred to as the Stabilisation Fund) sterilised a con-
siderable part of free liquidity. In addition, low-
liquidity ruble components (time deposits) pre-
vailed in the structure of ruble supply growth,
which was important from the viewpoint of weak-
ening the inflationary consequences of monetary
growth. At the same time, the trend of the de-
clining share of cash in the M2 aggregate largely
persisted in the first half of the year and had a
positive effect (along with other factors) on in-
flation dynamics and the velocity of money.
In the conditions of a considerable inflow
of foreign exchange to the domestic market and
the policy of the managed floating of the ex-
change rate, the Bank of Russia took measures to
contain money supply growth and its monetary
policy aimed to restrain the expansion of the mon-
etary base and absorb excess liquidity. The value
of funds absorbed in the accounts of the general
government with the Bank of Russia (largely
through the expansion of the Stabilisation Fund)
exceeded money supply growth from the Bank of
Russia’s operations on the domestic foreign ex-
change market.
The Bank of Russia conducted operations
with its own bonds (OBR bonds) and daily fixed
rate deposit operations on standard terms and also
held deposit auctions as major sterilisation instru-
ments. At the same time, as the level of banking
liquidity fell in 2005 Q2, such operations relating
to the provision of liquidity as repo operations and
also intraday credits and overnight loans were
most popular with banks.
3 2005 Q2
Major Inflation Indicators
According to the Federal Statistics Service,
consumer prices rose 8.0% in the first half of 2005
(6.1% in January-June 2004).
Inflation equalled 2.5% in 2005 Q2 as
against 5.3% in 2005 Q1. Consumer prices rose
1.1% in April month on month, 0.8% in May and
0.6% in June. Consumer price inflation in the
moving 12-month period stood at 13.7% in June
2005 (13.6% in March 2005).
Core inflation equalled 4.4% in June 2005
as compared with December of the previous year
(it was 4.3% in the first half of 2004). The prices
of goods and services included in the core infla-
tion calculation grew 1.9% in 2005 Q2 (2.4% in
2005 Q1). The prices of this group of goods and
services increased 0.9% month on month in April,
0.6% in May and 0.5% in June. Core inflation in
the moving 12-month period stood at an estimated
10.6% in June 2005.
Estimates show that growth in the prices of
goods and services included in the core inflation
calculation in January-June 2005 accounted for
3.5 percentage points, or 44.1% of overall con-
sumer price growth as against 3.5 percentage
points, or 57.2%, in January-June 2004.
The relatively high level of core inflation reg-
istered in the past two years is largely due to vola-
tile, local and short-term factors.
Food prices, excluding vegetable and
fruit prices, gained 5.5% in January-June 2005
as against 5.2% in the same period last year. They
rose 3.1% in 2005 Q1 and 2.4% in 2005 Q2. In the
first half of 2005, growth in food prices, exclud-
ing vegetable and fruit prices, accounted for an
estimated 2.5 percentage points, or 31.3%, of
overall consumer price growth as against 2.6 per-
centage points, or 42.3%, in the same period of
2004.
The most significant growth in the first half
of 2005 was registered in the prices of meat and
poultry, which increased 14.6% as compared with
6.9% in the same period last year. This year, the
growth of poultry prices accelerated considerably
as compared with the same period of 2004 (they
rose 18.9% in the first six months of 2005 as com-
pared with 0.4% in January-June 2004). This year,
poultry prices grew faster than beef and pork
prices apparently due to stronger consumer de-
mand for cheaper poultry. Meat and poultry prices
grew amid the expansion of meat imports (beef,
pork and poultry). The share of beef (fresh, cooled
and frozen beef) imported under quotas increased
from 63.7% in January-June 2004 to 71.3% in the
same period of 2005 and the share of pork went
up from 89.9% to 92.7%. The domestic beef and
pork output declined in the first half of 2005 year
Major Inflation Indicators
2005 Q2
Food price inflation rates (%)
Growth (June 2005 on
December 2004)
Growth (June 2004 on
December 2003) Outcome
Bread and bakery products 1.6 13.6 Retardation by 8.5 times
Cereals and legumes -1.6 7.3
Pasta 1.7 10.6 Retardation by 6.2 times
Meat and poultry 14.6 6.9 Acceleration by 2.1 times
Fish and seafood 10.7 2.1 Acceleration by 5.1 times
Milk and dairy products 2.7 1.6 Acceleration by 1.7 times
Butter 2.4 -0.9
Sunflower oil 2.0 -0.8
Granulated sugar 1.4 4.4 Retardation by 3.1 times
Alcoholic beverages 4.4 5.4 Retardation by 1.2 times
Inflation rates on the consumer goods market as a whole (%)
Growth (June 2005 on
December 2004)
Growth (June 2004 on
December 2003) Outcome
Prices of goods and services included in core inflation calculation 4.4 4.3 Some acceleration
Including:
Food prices, excluding vegetable and fruit prices 5.5 5.2 Acceleration by 1.1 times
Non-food prices 2.4 3.4 Retardation by 1.4 times
Prices of paid services provided to households 15.4 11.0 Acceleration by 1.4 times
Including:
Prices of goods and services regulated at federal or regional levels 19.3 13.3 Acceleration by 1.5 times
Vegetable and fruit prices 40.6 13.9 Acceleration by 2.9 times
5 2005 Q2
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-June as % of January-June of previous year) 1.1 10.2
Livestock* and poultry production (January-June as % of January-June of previous year)
- by farms of all categories -2.2 -0.3
- by agricultural enterprises 0.8 2.7 -12.6 -8.1 -6.5 0.1 18.2 18.5
Imports** (January-June as % of January-June of previous year)
- volume 23.6 -21.7 22.1 3.5 3.7 -21.1 33.2 -24.7
- value 25.6 -10.4 25.9 26.7 11.2 -8.2 39.7 -22.8
Prices (June as % of December of previous year)
- producer prices 10.4 8.8 14.7 21.2 0.0 9.2 18.0 -0.3
- livestock and poultry selling prices 13.4 10.6
- consumer prices 14.6 6.9 16.8*** 10.9*** 11.7*** 9.2*** 18.9 0.4
- import prices** 4.1 5.0 6.2 15.2 3.3 9.3 3.9 -2.4
Livestock population* as of the end of month (June as % of June of previous year) -7.3 -6.4 -10.1 -11.5
* Cattle and swine.
** The estimate is based on Rosstat's figures.
*** Exce
pt boneless meat.
on year while the domestic poultry production
expanded. The accelerated growth of meat prices
affected the dynamics of fish and seafood prices.
In the first half of the year, fish and seafood prices
rose 10.7% (2.1% in the same period of 2004).
Year on year, the most significant slowdown
in the first half of 2005 was registered in the prices
of bread and bakery products (by 8.5 times) and
pasta (by 6.2 times) due to the expectations of a
good grain harvest this year.
The prices of cereals and legumes dropped
1.6%.
Non-food prices rose 2.4% in the first half
of 2005 as against 3.4% in the same period of
2004. The last time non-food price growth was
so small in the first half-year was registered in
1998. The prices of non-food products increased
1.1% in 2005 Q1 and 1.3% in 2005 Q2. In January-
June 2005, the most significant increase in non-
food prices was registered in the prices of knitwear
(by 3.6%) and detergents (by 3.4%).
Petrol went up 2.6% in the first half of 2005
(14.2% in the same period last year).
The prices of knitwear, footwear, clothes
and underwear grew slower than in the first half
of 2004. Television and radio prices were observed
to decline by 0.9%.
Estimates show that non-food price growth
accounted for 0.7 percentage points, or 8.9%, of
overall consumer price growth in January-June
2005 as against 0.9 percentage points, or 15.3%,
in January-June 2004.
Overall, in the first half of 2005, as last year,
food prices, excluding vegetable and fruit prices,
grew faster than non-food prices.
Vegetable and fruit prices grew 40.6% in
January-June 2005 or almost three times faster
than in the same period of 2004 (13.9%) but this
growth was below the average growth figure in
the first half of 2001-2003 (47.5%). According to
estimates, as a result of growth in vegetable and
fruit prices in January-June 2005 headline infla-
tion accelerated by 1.6 percentage points, or
19.5%. In January-June 2004, the contribution of
vegetable and fruit price increase to consumer
price growth stood at 0.7 percentage points, or
11.8%.
Consequently, the considerable growth in
vegetable and fruit prices affected food prices as
a whole: they grew 8.6% in the first half of 2005
as against 6.0% in the same period last year. Food
prices increased 4.9% in 2005 Q1 and 3.5% in 2005
Q2.
The prices of paid services provided to
households rose 15.4% in January-June 2005
(11.0% in January-June 2004). The prices of paid
services grew 12.6% in 2005 Q1 and 2.6% in 2005
Q2. The most significant increase over that period
was registered in rent and amenities prices (by
29.1% as against 18.6% a year ago) and pre-school
tuition fees (by 21.9% as against 12.5% in the same
period last year).
Growth in paid service prices in January-June
2005 was considerably faster than growth in the
2005 Q2
prices of goods, which stood at 6.0%. Estimates
indicate that growth in paid service prices in the
first half of 2005 accounted for 3.2 percentage
points, or 40.3%, of overall consumer price
growth as against 1.9 percentage points, or
30.6%, in January-June 2004.
The analysis of the distribution of in-
creases in the prices of goods and services in
2002-2005 (June on December of the previous
year) was based on a selection of more than 400
consumer goods and services and conducted with-
out taking account of their weight coefficients in
consumer expenses.
In the past four years, the prices of the bulk
of consumer goods and services (over two thirds)
grew within the 0-8% range in January-June. In
2004-2005, price growth distribution was ob-
served to slightly shift towards smaller values. In
2005, as in the previous year, major growth (45%)
in the prices of goods and services was within the
0-4% range or 1.7 and 1.9 times more than in 2002
and 2003 respectively.
The distribution median characterising the
range of growth in the prices of the bulk of goods
and services was unchanged in January-June 2005
(3.8%) as compared with the same period last
year. The distribution average increased by 1.2
percentage points year on year and stood at 6.4%
(7.2% in the same period last year). The standard
deviation, which characterises the extent of price
growth difference from the average, rose to
12.4% from 6.3% a year ago and was larger than
in the previous three years. This situation was at-
tributable to a considerable increase in the share
of goods and services with a high rate of price
growth. It was typical for the past two years that
some goods and services registered deflation.
In the first half of 2005, services registered
the largest and non-food products the smallest
price growth in the sample average. The median
values reflecting increases in the prices of the bulk
of food and non-food products did not differ sig-
nificantly compared to average values. In the first
half of 2005, the standard deviation for food
products increased by 2.5 times year on year. The
standard deviation for non-food products de-
creased compared to the first half of 2004 as the
7 2005 Q2
Major Inflation Indicators
price dynamics of some components of this group
of goods evened out.
A statistical analysis of food price increases
indicated that the distribution average and median
values had grown in the first half of 2005 year on
year. The standard deviation increased due to a
considerable growth in the prices of vegetables
and fruit and meat products.
The distribution of non-food price increases
has a pronounced maximum and small dispersion
reflecting the extent of growth deviation from the
average. Consequently, the increases in the prices
of most goods in this group remained within a
narrow range. Thus, in the first half of 2005,
goods in the 0-8% price growth range accounted
for 88.5% of all non-food products. In the same
period of 2004, this price growth range accounted
for 87.2% of goods.
The distribution of service price increases in
the first half of 2005 was characterised by a peak
corresponding to the 4-12% growth range. The
range of increases in the prices of the bulk of paid
services shifted towards higher price growth. In
2005, there was a relatively large share of services
with the price growth of over 28%. The share of
services, which registered lower prices, declined
from 14% to 11% in the first half of 2005 year on
year.
2005 Q2
According to Rosstat’s data, in the first six
months of 2005, consumer prices in all federal
districts of Russia grew faster than last year.
Consumer prices in the Central, North-Western,
Southern and Far Eastern Federal Districts grew
faster than in Russia as a whole by 0.1 percentage
points, 0.1 points, 2.6 points and 0.6 points respec-
tively.
According to estimates, 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
Service for interregional comparisons of house-
hold purchasing power narrowed in 2004. In 2005,
this tendency changed. The regional difference
ratio
1 increased to 43.1% in the first half of 2005
from 42.6% a year ago. These dynamics are
largely attributable to the fact that unlike the situ-
ation in 2004, there was no slowing of consumer
price growth in the Far Eastern Federal District,
which has the most expensive consumer basket.
As in 2004, vegetable and fruit prices dem-
onstrated the most significant differences in
growth rates by region in January-June 2005.
Thus, vegetable and fruit prices grew 73.2% in the
Southern Federal District and 18.3% in the Far
Eastern Federal District. Growth in the prices of
non-food products and foodstuffs, excluding
vegetables and fruit, was, on the contrary, roughly
the same in all federal districts.
In the first half of 2005, growth in the prices
of paid services provided to households acceler-
ated considerably in all federal districts as com-
pared with the same period last year. The largest
increase was registered in the Far Eastern and
Southern Federal Districts where the prices of paid
services grew by 9.4 and 8.4 percentage points
respectively (in Russia as a whole, service prices
rose by 4.4 percentage points).
External Conditions
World Economy and International Financial
Markets
US economic growth continued in the first
half of 2005 but it was slower than in the first half
of 2004. Economic growth rates were observed
to fall in the leading developed countries, the
group of new industrial countries of Asia, Latin
American states, developing Asian countries (in-
cluding China) and the group of Central European
and Baltic states that have been the EU members
since 2004. The growth of oil prices, relatively low
US dollar rate and higher interest rates in the USA
were the factors that restricted world economic
growth in the first half of 2005.
According to preliminary estimates, US real
GDP grew 3.6% in January-June 2005 year on year
(4.7% in January-June 2004). Real GDP rose by
an estimated 1.3% in the eurozone countries in the
first half of 2005 as against 1.8% in the same pe-
riod last year, by 1.3% in Japan (3.6%) and by
9.5% in China (9.7%). Fixed capital investment
growth tended to slow down in these countries;
in some countries (the USA and Japan), the slower
growth of individual consumption also played a
significant role.
The growing demand in the USA continued
to considerably stimulate the economies of its
trade partners. The US trade deficit widened by
almost $60 billion in the first half of 2005 year on
year as imports grew faster than exports. In par-
ticular, the US deficit in trade with China increased
by 1.3 times to almost 25% of the US total trade
deficit. The growing imbalance in the US-Chinese
trade adversely affected the trade balances and
economies of the United States’ other leading
partners, including the eurozone countries and
Japan. Their currencies (as compared to the yuan)
appreciated considerably in nominal terms against
the US dollar and made their goods less competi-
tive.
The growth of the imports of goods into
China slowed down sharply in the first half of 2005
as compared with the first half of 2004, suggest-
ing that the increase of China’s domestic demand
started to play a less significant role in world eco-
nomic growth. On the contrary, the accelerated
growth of the imports of goods into the group of
eurozone countries and Japan suggested that the
rising domestic demand in these countries has a
positive effect on the economies of their trade
partners (in particular, regional trade partners in
Europe and Asia).
1 The regional difference ratio is calculated as the difference between the cost of a fixed set of goods and services in the mos t
expensive and the cheapest regions relative to the national value of the same set.
9 2005 Q2
Major Inflation Indicators
US inflation equalled 2.2% in June 2005 on
December 2004 (2.9% in June 2004). Food prices
grew 1% (1.5% in June 2004). The slower growth
was largely due to a fall in vegetable and fruit
prices (by 4.9%). The prices of animal products,
excluding milk and dairy products, rose 1.1% (0.7%
in June 2004). In particular, poultry prices grew
much faster in June 2005 on December 2004
(4.4%) than in June 2004 on December 2003
(1%); beef prices rose 3.1% (they fell 5.2% in June
2004 on December 2003). Higher prices of motor
fuel were a considerable inflationary factor; how-
ever, this growth slowed down significantly (from
35.6% in June 2004 on December 2003 to 15.1%
in June 2005 on December 2004). The prices of
energy products used in the housing and utilities
sector
2 increased 8% in June 2005 on December
2004 (8.8% in June 2004).
US core inflation 3 stood at 1.4% in June
2005 on December 2004 (1.5% in June 2004). The
higher rent charges, which grew by an average
2.1% (2.4% in June 2004), were a decisive factor
contributing to the general increase in consumer
prices. Medical service charges and the prices of
medicine-related goods rose by an average 2.5%
(2.6% in June 2004). Lower core inflation sug-
gests that the fundamental economic factors re-
lated to stronger consumer demand for goods and
services had a less significant effect on the price
growth rates in the USA from December 2004 to
June 2005 than in the same period last year. The
US Federal Reserve’s tight monetary policy (from
June 2004 to June 2005, US short-term interest
rates were raised by 2.25 percentage points)
helped the monetary authorities to curb inflation.
Reduced core inflation and the slower growth of
energy prices contributed to a lower headline in-
flation in the USA.
Inflation in the eurozone countries
equalled 1.2% in June 2005 on December 2004
(1.5% in June 2004). The growth of energy prices,
which rose 7.5% (5.1% in June 2004), was the
principal inflationary factor in the eurozone
economies. In particular, the prices of fuels and
lubricants for transport vehicles rose 9.1% (as in
June 2004); the prices of energy products used in
the housing and utilities sector grew 6% (1.8% in
June 2004). The growth of food prices slowed
down: they rose by an average 1.2% in June 2005
on December 2004 (1.4% in June 2004). Veg-
etable and fruit prices grew by an estimated 5%
(4.1%), meat and meat product prices by 0.4%
(0.4%).
Core inflation in the eurozone countries
stood at 0.4% in June 2005 on December 2004
(1% in June 2004). Therefore, fundamental eco-
nomic factors had a less significant effect on the
consumer price growth in December 2004-June
2005 than in December 2003-June 2004. How-
ever, market-determined factors related to the
growth of energy prices restrained a fall in infla-
tion in the eurozone countries (as compared with
the USA, where the slower increase in energy
product prices contributed to lower inflation). The
exchange rate dynamics in the first half of 2005
did not restrict eurozone inflation (the euro de-
preciated against the dollar in June 2005 on De-
cember 2004, whereas year on year the euro/dol-
lar rate was actually unchanged). Therefore, in-
2 Heating oil, boiler fuel, coal, town gas and electricity.
3 Core inflation in the USA is understood as growth in the prices of goods and services included in the consumer goods basket,
excluding foodstuffs and energy products.
4 Core inflation in the eurozone countries is understood as growth in the prices of goods and services included in the consumer
goods basket, excluding foodstuffs, alcoholic beverages, tobacco and energy products.
2005 Q2
sufficient economic activity was the principal fac-
tor that led to lower inflation in the eurozone
countries.
As for emerging market economies, which
account for a considerable proportion of Russia’s
trade turnover, inflation was observed to slow
considerably in June 2005 as compared with De-
cember 2004 in Belarus (4% as against 8.3% in
June 2004), in Slovakia (2.5% as against 6%), in
Poland (0.6% as against 3.5%), in Hungary (3.6%
as against 5.2%), in Estonia (2.4% as against
4.3%) and in Latvia (4.4% as against 5.5%). In-
flation in China went down to 0.2% (1% in June
2004). Inflation accelerated to 6.4% from 4.4%
in June 2004 in Ukraine and to 3.7% from 2.5% in
Kazakhstan.
In January-June 2005, the US Federal Re-
serve raised the target for the overnight inter-
bank loan rate (federal funds rate) four times:
from 2.25% to 2.5% in February, to 2.75% in
March, to 3% in May and to 3.25% in June. In
2004, this target was raised by 1.25 percentage
points. Since December 2004, it has exceeded the
European Central Bank’s refinancing rate, which
has not changed since July 2003.
The LIBOR rates on US dollar-denomi-
nated deposits with maturities from one month
to one year rose by 0.8-0.9 percentage points in
June 2005 on December 2004. The yields on US
treasuries rose by 0.5-0.6 percentage points for
securities with maturity from two to three years,
by 0.2 percentage points for papers with five-year
maturity and dropped by 0.2 percentage points for
papers with ten-year maturity. The LIBOR rates on
US dollar-denominated deposits with all terms and
the yields on US Federal Treasury bonds with all
maturities in June 2005 were higher than the
LIBOR rates on euro-denominated deposits and
the yields on eurozone securities.
In the first half of 2005, the dollar appre-
ciated against the major international reserve
currencies on foreign financial markets due to US
economic growth, the increased yields on US dol-
lar-denominated financial assets and the negative
results of the EU Constitution referendums in
France and the Netherlands. The dollar gained
8.9% against the euro, 4.2% against the Japanese
yen and 5.5% against the British pound in June
2005 on December 2004. The dollar also rallied
against some other currencies significant for
the Russian economy (the Swiss franc, Polish
zloty, Kazakh tenge, Swedish krona, Hungarian
forint, Czech koruna, Slovak koruna, Lithuanian
litas, Latvian lat, Estonian kroon, Romanian leu
and Israeli shekel). The dollar depreciated against
the Belarussian ruble, Ukrainian hryvnia, Turkish
lira, South Korean won, Indian rupee and Brazil-
ian real.
Foreign Trade
In the first half of 2005, the terms of
Russia’s trade with foreign countries continued to
improve. The growth of the terms of trade index
accelerated as compared with the first half of
2004 due to a considerable rise in export prices
and the moderate growth of import prices.
11 2005 Q2
Major Inflation Indicators
The world prices of Russia’s major export
commodities5 continued to grow in the first half
of 2005. According to Bank of Russia estimates,
the world price composite index adjusted for the
structure of Russian exports and calculated for
commodities that account for nearly 70% of their
value equalled 1.36 on average in the first half of
2005 year on year (1.15 in the first half of 2004).
The price index was 1.26 in June 2005 on Decem-
ber 2004 (1.13 in June 2004).
The growth of energy prices accelerated in
the first half of 2005. The average price of Urals
crude rose 46.1% year on year to $45.4 per barrel
(15.3% in the first half of 2004). In late June 2005,
the average price of Russian oil reached its record
high on the world market for the entire history of
exchange trade as it grew to $55 per barrel
6. The
price of Urals crude equalled $51.1 per barrel on
average in June 2005 or 42.5% higher than in De-
cember of the previous year (13.3% higher in June
2004).
The prices of natural gas and petroleum
products on the European market grew at about
the same rates as oil prices in the first half of 2005.
The prices of natural gas in Europe were 45%
higher on average than in the first half of 2004
and the prices of petroleum products were up
45%. The price of diesel fuel rose 53%, fuel oil
37% and petrol 29%. In June 2005 as compared
with December 2004, the prices of natural gas in
Europe went up 18% and the prices of petroleum
products increased 36% on average (the price of
diesel fuel grew 28%, fuel oil 68% and petrol
14%).
The growth of world non-energy prices
slowed down in the first half of 2005; however,
they continued to register high growth rates. Fer-
rous metal prices rose 20% in the first half of 2005
year on year (52% in the first half of 2004). Non-
ferrous metal prices increased 13% on average
(33% in the first half of 2004). The price of alu-
minium rose 11% (20%), copper 21% (67%) and
nickel 17% (63%). Ferrous metal prices grew 11%
on average in June 2005 on December 2004 (54%
in June 2004) and non-ferrous metal prices went
up 1.7% (1.2%).
Food prices
7 remained high on world mar-
kets in the first half of 2005. The prices of beef
went up 11.7% and pork 5.1% in January-June
2005 year on year. Poultry prices actually remained
at the same level; the price of refined sugar rose
15.9% and raw sugar 33.1%. Meat and sugar prices
tended to grow slower in the first half of 2005.
The prices of beef rose 2.5% in June 2005 as com-
pared with December 2004 (9.8% in June 2004)
and poultry 1.2% (15.4%). Pork prices went down
6.5% in June 2005 on December 2004 (they rose
61% in June 2004). The price of refined sugar grew
12.2% over that period (16.7%) and raw sugar
3.6% (15.3%).
As the foreign trade situation continued to
improve, Russia’s balance of payments remained
stable in the first half of the year. According to
preliminary estimates, it was characterised by the
following data.
5 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), the London Metal Exchange for non-ferrous metals (aluminium, copper and nickel), the World
Bank for average monthly prices of natural gas and ferrous metal price indices; prices of other commodities are based on data
from the International Monetary Fund.
6 Closing price of June 27, 2005 according to data provided by Reuters.
7 The average prices of raw and granulated sugar are calculated on the basis of data provided daily by the London Commodity
Exchange; the average monthly prices of beef, mutton, oranges and bananas are based on data from the World Bank; the prices
of other commodities are based on data from the International Monetary Fund.
2005 Q2
The current account surplus was estimated
at $46.4 billion in the first half of 2005 ($26.3 bil-
lion in the same period last year) and trade sur-
plus at $58.9 billion or 1.5 times higher than in the
first half of 2004. The exports of commodities
increased 40% to $112.5 billion, including the value
of exported fuel and energy products (oil, petro-
leum products and natural gas), which rose by 1.5
times. The imports of goods totalled an estimated
$53.6 billion or 27% more than in the first half of
2004.
The deficit of operations with international
services rose to an estimated $6.2 billion ($5.7 bil-
lion in the first half of 2004). As before, the grow-
ing deficit was attributable to a faster growth in
the imports of services (they expanded to $16.6
billion) than in their exports (they rose to $10.4
billion).
The deficit of the balance of investment in-
comes narrowed from $5.7 billion in the first half
of 2004 to $5.3 billion in the first half of 2005.
Residents’ foreign liabilities increased by
$23.0 billion in the first half of 2005 as against
$13.2 billion in the same period last year. The li-
abilities of government sector and monetary au-
thorities contracted by $3.4 billion, while the li-
abilities of the private sector, which actively at-
tracted foreign capital, expanded by $26.4 billion.
Credits and loans ($11.9 billion) and also direct in-
vestments ($9.3 billion) were the major forms to
attract foreign capital to the sector of non-finan-
cial enterprises in the first half of 2005. Capital in
the form of credits and loans accounted for 50%
of foreign investment to the non-financial enter-
prise sector (56% in the first half of 2004) and
capital in the form of foreign direct investment
accounted for 39% (31% a year ago).
The intensified foreign capital inflow to the
private sector was attributable to the improvement
of investment climate in Russia, which did not pass
unnoticed by international rating agencies. In
January 2005, the international rating agency
Standard & Poor’s raised Russia’s rating to the in-
vestment grade (Moody’s Investors Service and
Fitch Ratings raised Russia’s rating to the invest-
ment grade in 2003 and 2004).
Accounting foreign assets (net of foreign
exchange reserves) rose by $29.1 billion in the first
half of 2005 largely due to transactions of the pri-
vate sector whose assets expanded by $24.2 bil-
lion. Capital outflow from the banking sector
stood at $9.4 billion ($5.9 billion in the first half
of 2004), while capital outflow from the sector
of non-financial enterprises and households to-
talled $14.8 billion as against $14.9 billion in the
first half of 2004. Capital outflow from the gov-
ernment sector and monetary authorities in-
creased to $4.8 billion ($2.2 billion in the first half
of 2004).
The private sector’s net capital outflow con-
tracted considerably, from $10.3 billion in the first
half of 2004 to $5.7 billion in the first half of 2005.
Net capital outflow from the banking sector in the
first half of 2005 was estimated actually at the
level of the first half of 2004 ($6.6 billion). Net
capital outflow of $3.9 billion from the sector of
non-financial enterprises and households in the
first half of 2004 gave way to its net inflow of
$0.9 billion in the first half of 2005.
The inflow of foreign currency into the
country considerably exceeded demand for for-
eign exchange from businesses and led to an in-
crease in Russia’s international reserve assets. As
of July 1, 2005, Russia’s international reserves to-
talled $151.6 billion and expanded by $27.0 billion
from the start of 2005 (in the first six months of
2004, they grew by $11.3 billion). Their accrued
amount would be enough to finance the imports
of goods and services during 13 months (9.3
months in the first half of 2004).
Russia’s foreign debt was estimated at
$221.4 billion as of April 1, 2005 and rose by 2.9%
($6.3 billion) as compared with January 1, 2005.
The government and monetary authorities re-
duced their foreign debt by 4.5% ($4.8 billion)
whereas the private sector’s debt rose by 10.2%
($11.2 billion) largely due to an increase in the li-
abilities of the non-financial enterprise sector.
Internal Conditions
Industrial production expanded 4.0% in the
first half of 2005 (7.3% in the first half of 2004).
The slowing of industrial output growth over that
period was due to the year-on-year slowdown of
production growth in the manufacturing sector
(from 8.5% to 5.6%) and in mining (from 8.2%
to 1.4%).
Agricultural output increased 0.2% in Janu-
ary-June 2005 year on year (it fell 1.2% in Janu-
ary-June 2004).
13 2005 Q2
Major Inflation Indicators
Freight transport’s turnover expanded 2.8%
in January-June 2005 as compared with the same
period last year (growth in 2004 stood at 7.4%).
The freight turnover of railway transport increased
2.5%, automobile transport 9.6% and pipeline
transport 3.1%.
In January-June 2005, household real dis-
posable money income grew 8.3% year on year
(8.9% in January-June 2004).
As was the case in the first half of 2004,
consumer expenses tended to grow faster than
household real money income in the first half of
2005. Amid the increased public propensity for
consumption and the reduced share of expenses
on savings, this trend suggested insufficient liv-
ing standards. Thus, according to an estimate,
consumer spending increased 9.9% in real terms
in January-June 2005 year on year or 0.8 percent-
age points less than in January-June 2004. Grow-
ing consumer demand contributed to price
growth.
Despite the growth of household money in-
come, the share of expenses on the purchase of
goods and services continued to be considerable.
Thus, according to preliminary data, this share was
72.5% in the first half of 2005 as against 70.6%
in the same period last year. The share of expenses
on services rose to 17.4% from 16.6% in the first
half of 2004. The relatively high rates of growth
in the prices of paid services provided to house-
holds contributed to the increase of this share.
The conditions stimulating corporate invest-
ment activity remained in the first half of 2005.
The value of fixed capital investment rose 9.4%
in January-June 2005 year on year (12.6% in Janu-
ary-June 2004).
The situation on the labour market improved
in the first half of 2005 as compared with the same
period last year. Employment stood at 92.1% of
the economically active population, while 7.9%
were classified as unemployed according to ILO
methodology (91.5% and 8.5% respectively in the
first half of 2004).
Inflation was affected by price dynamics in
industries whose output goes directly to the con-
sumer goods market. According to estimates, pro-
2005 Q2
ducer price growth in these industries accounted
for 1.3 percentage points of growth in the prices
of goods and services included in the core infla-
tion calculation in January-June 2005 (3.1 percent-
age points in January-June 2004).
In the first half of 2005, the pressure put
on consumer prices by costs (especially the costs
of material resources) was less significant than in
the first half of 2004. In particular, the increase in
the mining price growth slowed down. Mining
prices rose 22.5% in June 2005 on December 2004
(34.5% in June 2004) despite the rise in oil prices
and the increase in basic tax rates for oil and gas
production from January 1, 2005. However, as last
year, producer prices in the mining sector grew
faster than in the manufacturing industries.
Manufacturing producer prices grew 5.3% as
against 12.3% in June 2004.
The prices of the production and distribu-
tion of electricity, gas and water grew 12.2% in
June 2005 on December 2004 or by 0.1% slower
than in the same period last year.
Freight transportation charges rose 20.3%
in the first half of 2005 (8.5% in the same period
of 2004). Railway transport fares increased 8.8%
as against 12.6% in the same period last year.
According to Rosstat’s updated figures, in
January-May 2005, the growth rate in profit net
of loss of companies in the mining sector stood at
177.6%, in manufacturing industries 125.6% and
in the production and distribution of electricity,
gas and water 118.7%.
At the same time, competition, including
one put up by importers, continued to affect price
formation in the manufacturing sector oriented
to consumer demand. Thus, producer prices in the
production of foodstuffs (including beverages)
and tobacco, textiles and clothing, leather, leather
goods and footwear grew slower in January-June
2005 than in the manufacturing sector as a whole.
In the first half of 2005, output in the textile and
garment industry and the production of leather,
leather goods and footwear was smaller than in
the same period last year. According to Rosstat’s
data, in January-April 2005, profits (profit net of
loss) of companies producing foodstuffs (includ-
ing beverages) and tobacco contracted by 1.2
times year on year and profits of companies
manufacturing leather, leather goods and foot-
wear fell by 3.4 times. The textile and garment
industry operated at a loss unlike the situation in
January-April 2004.
The growth of prices in some manufactur-
ing industries, whose output goes to the consumer
goods market, did not accelerate in the first half
of 2005 as compared with the same period last
year. Thus, the growth of producer prices slowed
down from 7.0% in January-June 2004 to 1.9% in
January-June 2005 in the food industry, from
5.7% to 1.7% in the textile and garment industry
and from 5.4% to 3.3% in the production of
leather, leather goods and footwear.
The growth of nominal and real wage, typi-
cal of the past two years, continued in 2005. This
growth was facilitated by the increase of the mini-
mum pay from 600 rubles to 720 rubles from Janu-
ary 1, 2005. According to preliminary data, the
average monthly nominal imputed wage stood at
7,943 rubles in January-June 2005, an increase of
8% in real terms (14.2% in January-June 2004).
The average monthly pension was 2,225
rubles in January-June 2005, according to prelimi-
nary estimates, a 7.4% increase in real terms year
on year (6.8% in January-June 2004). Pensions
grew as their basic part increased by 240 rubles
from March 1, 2005 to 900 rubles.
According to data of the Institute for the
Economy in Transition, the inflationary expecta-
tions of managers of leading industrial enterprises
were somewhat lower on average in the first half
of 2005 than in the same period last year. Thus, in
January-June 2005, 22-38% of respondents ex-
15 2005 Q2
Major Inflation Indicators
pected selling prices to grow as against 31-40%
in the first half of 2004. In January-June 2005, a
trend towards lower inflationary expectations was
observed (from 38% in January to 19% in June)
as prices mostly grew in the first months of 2005
and most producers do not expect the prices of
their products to rise in the near future. It is sig-
nificant that in the past twelve months, enterprises
expected the most significant growth of their sell-
ing prices in December 2004 (40% of respon-
dents, according to data of the Institute for the
Economy in Transition). High inflationary expec-
tations preceded a considerable price leap in Janu-
ary-March 2005.
17 2005 Q2
Quantitative and Qualitative Monetary Indicators
Exchange Rate
The situation on the domestic forex market
in 2005 Q2 was characterised by the continued
dollar’s strengthening against the ruble. Despite a
considerable inflow of foreign currency earnings
to the Russian market amid the favourable for-
eign economic conditions, exchange rates were
especially influenced by the expectations of the
dollar’s appreciation against the euro on interna-
tional markets.
These trends caused the Bank of Russia to
reduce its ruble interventions on the forex market
in May-June and this contributed to slower growth
in money supply.
The bi-currency basket introduced by the
Bank of Russia in February 2005 as the target of
its exchange rate policy continued to contribute
to lower speculative activity of forex market play-
ers in 2005 Q2. Considering the rising role of the
euro in trade turnover, the Bank of Russia changed
the structure of its bi-currency basket from May
16, 2005. The euro share went up to 30% and the
dollar share went down to 70%.
After the dollar’s considerable appreciation
against the ruble at the end of Q1, its changes in
April were insignificant. However, the expecta-
tions of forex market players were linked with the
dollar’s further growth amid favourable economic
news coming from the USA. The average monthly
dollar/ruble rate stood at 27.82 rubles to the dol-
lar, an increase of 0.7% as compared with March.
Political debates in EU countries influenced
considerably the sentiments of market players in
2005 Q2. In May-June, these debates prompted
the accelerated appreciation of the dollar against
the euro and, therefore, against the ruble. In May
2005, the average monthly dollar/ruble rate was
27.92 rubles to the dollar, an increase of 0.4%. In
June, the US currency gained more considerably
(2%) and the average monthly dollar/ruble rate
equalled 28.50 rubles to the dollar.
As a result, the dollar appreciated noticeably
against the ruble in Q2 (0.9%). The average quar-
terly dollar/ruble rate was 28.08 rubles to the dol-
lar.
The European currency registered down-
ward dynamics in Q2: the average euro rate
dropped 3.3% to 35.42 rubles to the euro. The
average monthly euro/ruble rate depreciated
1.4% in April month on month and 1.2% in May.
In June, the weakening of the European currency
accelerated to 2.4%.
In 2005 Q2, the ruble’s real effective rate
appreciated 3.7% against foreign currencies (7.7%
since the start of the year). The ruble’s real rate
gained 1% against the dollar (4.3% since the start
Quantitative and Qualitative
Monetary Indicators
2005 Q2
of the year) and 5.8% against the euro (11.7%
since the start of the year).
In 2005 Q2, as the Bank of Russia conducted
its operations on the forex market and took mea-
sures to smooth over the dollar’s sharp fluctua-
tions against the ruble, Russia’s international re-
serve assets grew by $14.2 billion or 10.3% as com-
pared with 2005 Q1. The largest growth was reg-
istered in April (by 5% month on month), when
international reserve assets increased by $6.9 bil-
lion. They grew by $3.1 billion (2.2%) in May and
by $4.2 billion (2.9%) in June. The growth of in-
ternational reserves slowed down in May-June as
the Bank of Russia reduced the amount of its ruble
interventions on the domestic forex market dur-
ing the period of the dollar’s appreciation against
the ruble. Since the beginning of the year, Russia’s
international reserve assets have expanded by
more than $27 billion or 21.7%.
Interest Rates
The average price level of short-term funds
determined by the Bank of Russia interest rate
band slightly increased in 2005 Q2 as compared
with the previous quarter. Commercial banks’
ruble liquidity declined and the ruble’s nominal rate
against the dollar weakened in 2005 Q2. As a re-
sult, financial market players were less interested
in investing in ruble-denominated assets. As in-
flation ran at fairly rapid rates in April-May, there
was no single trend in interest rate dynamics and
the volumes of operations in the major segments
of the financial market.
The Bank of Russia made no changes in in-
terest rates on the deposit operations conducted
on standard terms in 2005 Q2. The interest rate
on tom-next deposits accounting for the largest
share of credit institutions’ funds placed on de-
posit shaped the lower limit of the interest rate
band (it equalled 0.5% p.a.). The Bank of Russia
overnight loan rate, the upper limit of the band,
remained also unchanged at 13% p.a. The aver-
age-weighted interest rates on deposit auctions
were slightly higher in 2005 Q2 quarter on quar-
ter at 2.0% p.a. on 4-week deposits and 3.4% p.a.
on 3-month deposits. The average-weighted yield
on Bank of Russia bonds (OBR), which were used
to attract banks’ funds, ranged from 3.5% p.a. to
4.36% p.a.
The average rate on repo operations as the
major market instrument of liquidity provision
equalled 6.3% in 2005 Q2.
Money market interest rates and rates on
commercial banks’ operations were within the
Bank of Russia interest rate band in 2005 Q2. As
the banking sector’s liquidity declined, the volatil-
ity and the average level of short-term interbank
loan rates increased. The MIACR on overnight
ruble loans ranged from 0.8% p.a. to 9.7% p.a. in
April-June (from 0.65% p.a. to 2.0% p.a. in the
previous quarter).
The market interest rate on loans extended
to non-financial enterprises with all maturities
dropped by 0.3 percentage points in April month
on month to 10.4% p.a. In the subsequent
months, this interest rate was observed to rise and
stood at 11.2% p.a. in June. As for the structure of
interest rates by maturity, loans with a maturity
of 6 to 12 months were the most expensive credit
resources for enterprises in April-May 2005 and
in June it was loans extended for 1 to 3 years. The
price of loans with all maturities rose by an aver-
age 0.03 percentage points in 2005 Q2 quarter on
quarter, while the price of 6 to 12-month loans and
1 to 3-year loans dropped by 0.06 and 1.59 per-
centage points respectively.
The growing demand for loans from house-
holds, along with high cost of consumer lending
and easier competition, enables banks to keep in-
terest rates on loans to individuals higher than on
loans to enterprises. In June, the interest rates on
loans to households with all maturities dropped
to 19.6% p.a. from 20.0% p.a. in March. As com-
19 2005 Q2
Quantitative and Qualitative Monetary Indicators
pared with Q1, the average interest rate on loans
to households with all maturities dropped by 0.2
percentage points in Q2 to 19.7% p.a. The largest
decline was registered in interest rates on 1 to 3-
year loans (by 0.6 percentage points to 19.8%
p.a.).
The interest rate on household time depos-
its rose by 0.23 percentage points in May-June but
was lower than in March. The average interest rate
on household time deposits was 8.2% p.a. in 2005
Q2 or 0.7 percentage points less than in 2005 Q1.
As in the previous quarter, deposits for a term of
6 to 12 months registered the highest interest rates
in 2005 Q2, while their average quarterly values
fell by 0.4 percentage points. As compared with
Q1, deposits for a term of 8-30 days registered
the largest fall of average quarterly rates (by 2.8
percentage points) in Q2.
The yield curve on banks’ lending operations
retained its rising slope in 2005 Q2. The curve’s
positive incline in the up to 90 days sector slightly
narrowed and increased for terms of over 3 years.
The term structure of interest rates on banks’ lend-
ing operations shows that market participants’
inflationary expectations remain moderate.
A weak downward yield trend prevailed on
the OFZ bond market from April to the first ten-
day period of May. From this period and up to the
2005 Q2
last week of June, a weak upward yield trend was
registered. The yields of OFZ bonds fluctuated
within the range of 0.17 percentage points in April-
June. The effective indicator of the government
bond market portfolio dropped by 0.02 percent-
age points by the end of the period as compared
with the end of March to 8.02% p.a. As compared
with Q1, the average quarterly effective indicator
of the market portfolio rose in Q2 by 0.1 percent-
age points to 8.04% p.a.
The government bond yield curve kept its
normal shape in the reporting period. A slight in-
crease in yields in Q2 caused the curve to move
slightly upwards. The rising slope of the yield curve
extended to the up to 11 years section in the re-
porting period (it was limited to the 8 years sec-
tion in Q1). The OFZ bond yield curve deviated
noticeably from the flattened line in the over 11
years section due to debt depreciation of these
issues (their yields are directly proportional to du-
ration instead of their term to redemption). The
yield curve slope fluctuations were insignificant in
April-June. No inflation risk premium was included
in the prices of short-term government bonds. The
medium- and long-term inflationary expectations
of market players were unchanged from the pre-
vious quarter. The risk of investing in papers with
terms to redemption longer than five years was
determined by market players by evaluating the
risk involved in investing in medium-term issues.
Investors kept their assessments of the reliability
and liquidity of ruble-denominated government
bonds for all terms.
In 2005 Q2, the interest rate structure by
instrument remained balanced enough. The yield
curves of key financial instruments had a normal
shape suggesting that the yield on financial instru-
ments was in direct proportion to their maturity
periods amid stable short- and medium-term in-
flationary expectations of Russian financial mar-
ket players.
Long-term inflationary expectations cannot
be evaluated accurately owing to the small scale
of operations with long-term financial instru-
ments. In 2005 Q2, the yield curve of the various
longest-term instruments changed its negative
21 2005 Q2
Quantitative and Qualitative Monetary Indicators
slope for the rising slope. This testifies to differ-
entiated medium- and long-term price expecta-
tions.
Money Supply
In 2005 Q2, annualised M2 growth in-
creased to 33.6% from 30.8% as of April 1, 2005.
In April-June 2005, the M2 growth was season-
ally faster than in the first quarter and equalled
10.1%. This growth exceeded the M2 increase in
the same period last year but was slightly lower
than the second-quarter average growth since
1999.
In March 2005, the trend towards the lower
annualised growth in money supply gave way to
the opposite one. Annualised M2 growth regis-
tered as of July 1, 2004 continued in the short-term
perspective and slightly exceeded demand for
ruble supply projected for 2005 (28-32%). At the
same time, the long-term trajectory of money
supply growth continued to have a descending
slope (40.4% as of July 1, 2004). With the con-
tinued seasonal specifics of money supply dynam-
ics and the budget’s considerable role in liquidity
sterilisation, the M2 growth may slow down at the
end of 2005 Q3.
Unstable demand for the domestic currency
that determines the M2 dynamics brings about an
additional factor of uncertainty in assessing core
inflation in late 2005 and early 2006.
The gap between M2 and GDP growth
rates
1, which sharply narrowed in the previous
year, was actually unchanged in 2005 Q2 as com-
pared with the first quarter. The dynamics of
money velocity are essential to evaluate the influ-
ence of this gap on inflation. In 2005 Q2, money
velocity fell 2% (3.7% in 2004 Q2). Therefore, the
slowing of fall in money velocity observed from
the second quarter of 2004 continued, and some
factors, especially unstable demand for the do-
mestic currency, the slowing of the process of de-
dollarisation and money supply structural changes
caused the dynamics of money velocity to deviate
from the medium-term trend. This can be inter-
preted as increased inflationary pressure, given
that the annualised money supply growth stays
at the current level.
The gap between the growth rates of GDP
and the broader monetary aggregate M2X com-
prising economic agents’ foreign currency non-
cash funds insignificantly narrowed in 2005 Q2.
Since 2003, the M2-GDP and M2X-GDP trajecto-
ries were similar but the M2X-GDP gap was at a
lower level.
The money aggregate in the monetary sur-
vey definition (similar to the M1 aggregate), which
includes the most liquid transactional components
of money supply, reflects economic conditions
and liquidity preferences. In 2005 Q2, its dynam-
ics were mainly affected by the accelerated
1 This gap characterises the part of monetary growth that exceeds the amount necessary to finance the expanded volume of
transactions. Its increase can testify to the inflationary pressure of money supply growth on price dynamics.
2005 Q2
growth of the aggregate’s cash component (M0
cash growth increased from an annualised 27.1%
to 29.4% in April-June 2005 and was lower than
in the same period last year).
Following seasonal trends, cash grew more
considerably in 2005 Q2 (11.4%) as compared with
2005 Q1 and this growth was faster than in the
second quarter of the previous year (9.5%). The
M0 dynamics in 2005 Q2 were especially affected
by the fluctuations of household demand for for-
eign currency cash and dynamics of household real
money income.
The M1 non-cash component is comprised
by about 80% of non-financial enterprise sector
funds and its increase reflects economic agents’
rising demand for money to conduct transactions
and service the payment turnover. The annualised
rates of growth (month on month of previous
year) in non-cash transaction money slightly in-
creased, from 27.8% to 29.8%, and were higher
than in the same period last year.
As cash and funds in transactional accounts
somewhat accelerated, the rates of growth in the
money aggregate in the monetary survey defini-
tion grew from an annualised 27.4% as of April 1,
2005 to 29.6% as of July 1, 2005. The rates of
growth in quasi-money (the aggregate compris-
ing less liquid components of the money supply
23 2005 Q2
Quantitative and Qualitative Monetary Indicators
used by economic agents as savings) were slightly
slower in 2005 Q2 than in the same period last year
but considerably faster than the rates of growth
in the money aggregate. The quasi-money dynam-
ics that emerged by the beginning of July (the
annualised growth rates remained at the level of
the beginning of Q2, equalling about 35% as
against 37.6% at the beginning of 2005) were
determined by the faster growth in time deposits
representing the ruble component of quasi-
money. In April-June, the annualised rates of
growth in time deposits accelerated by 4.2 per-
centage points to 41.4% but failed to exceed the
growth rates as of the beginning of the year and
as of the same date in 2004. The rates of growth
in foreign currency deposits representing the other
component of quasi-money slowed as compared
with Q1 and were also slower than in April-June
last year. In 2005 Q2, the trend towards accelera-
tion in the annualised rates of growth in foreign
currency deposits, observed in the previous year,
came to a halt and cannot be interpreted unam-
biguously.
Economic agents’ unsteady currency pref-
erences and the respective change in demand for
the national currency and foreign exchange caus-
ing the reciprocal flow of ruble and foreign cur-
rency funds were among the factors that deter-
mined the monetary aggregate dynamics in 2005
Q2. The rates of growth in the ruble monetary
aggregates (M0, M1 and M2) accelerated more
considerably as compared with the dynamics of
the M2X and M2Y aggregates, which include non-
financial agents’ foreign currency assets. Thus, the
rates of growth in M2X increased from an
annualised 31.2% as of April 1, 2005 to 32.4% as
of July 1, 2005, while the rates of growth in M2Y
accelerated by 0.5 percentage points in annual
terms in April-June.
Despite the slowing of growth in foreign
currency deposits in 2005 Q2 and a decline in the
value of cash foreign currency, the dynamics of
the notional broad M2Y aggregate demonstrated
an upward long-term trend. The annualised M2Y
growth rates were faster as of July 1, 2005
(25.6%) than as of the beginning of the year
2005 Q2
(24.3%) and as of the same date last year
(22.5%).
The dollarisation coefficient, the share of
the foreign currency component of the money
supply in the monetary survey definition (M2X),
dropped in 2005 Q2 by 0.5 percentage points to
18.1% (it increased by about the same figure in
the respective period of 2004). At the same time,
the ruble component of quasi-money continued
to predominate in M2X (29.6% as of July 1, 2005,
as against 29.4% as of April 1, 2005).
The slowing of the Russian economy’s de-
dollarisation is also characterised by the changes
in the structure of the M2Y aggregate. Thus, the
share of the foreign currency component of this
notional broad aggregate dropped by 1.5 percent-
age points in 2005 Q2 largely due to a contraction
in the share of cash foreign currency. The share
of all foreign currency funds in the broad M2Y
aggregate was smaller in 2005 Q2 than in the same
period last year.
The dynamics of enterprise and household
funds attracted by banks in rubles and foreign
currency (an annualised 33.6% as of July 1, 2005),
which serve as the basis for the expansion of lend-
ing volumes, were slower than the increase in
loans to the real sector (43.2% as of July 1, 2005).
In 2005 Q2, the increase of the banking sector’s
claims on the non-financial sector of the economy
was much higher than in the previous quarter (it
totalled 463.8 billion rubles in April-June) and also
exceeded the 2004 Q2 figures. The role of credit
to non-financial enterprises and households as a
source of aggregate money supply expansion in-
creased in 2005 Q2. However, the external source
continued to be a major source of growth in
money supply. The growth of banking sector net
foreign assets (by 626.4 billion rubles), mainly
caused by the Bank of Russia’s purchase of for-
eign exchange on the domestic forex market, was
two times larger in 2005 Q2 than in 2004 Q2.
The large-scale accumulation of funds in the
general government’s accounts, caused by the
expansion of the Stabilisation Fund, had a signifi-
cant restraining effect on money supply growth
in the first half of 2005. The Stabilisation Fund
totalled 617.9 billion rubles as of July 1, 2005. In
2005 Q2, its volume declined, however, the rates
of growth in monthly transfers of tax revenues to
the Stabilisation Fund continued to rise, while
some funds charged off from it to make early for-
eign debt payments had no inflationary conse-
quences.
The monetary base contracted 3.2% in the
first half of 2005, while the government’s bal-
ances with the Bank of Russia expanded by almost
two times. In April-June 2005, the monetary base
(broad definition) grew 2.3% (it declined by al-
most 1% in 2004 Q2). The share of credit institu-
tions’ funds in correspondent accounts with the
Bank of Russia decreased from 14.5% to 12.2% in
April-June 2005 (it was actually unchanged in the
same period last year). The share of credit institu-
tions’ funds absorbed by the Bank of Russia
through its deposits, operations with its bonds and
repo operations dropped from 9.6% to 5.8% in
the monetary base during the quarter and from
15.5% to 11.7% taking into account the credit in-
stitutions’ required reserves.
25 2005 Q2
Statistical Addendum
Statistical Addendum
Consumer prices by group of goods and services
(month on month, %)
Monthly inflation Core inflation Food price growth
Growth in food
prices 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
April 1.1 0.9 1.7 1.3 5.4 0.5 0.8
May 0.8 0.6 1.1 0.7 4.1 0.4 0.8
June 0.6 0.5 0.7 0.4 3.3 0.3 0.9
2005 Q2
Consumer prices by group of goods and services
(total for quarter, %)
Inflation Core inflation Food price growth
Growth in food prices
net of vegetable
prices
Vegetable and fruit
price growth
Non-food price
growth Service price growth
I 5.4 2.8 4.2 2.1 22.6 2.7 14.5
II 3.4 1.5 3.0 0.7 20.1 3.1 5.1
III 1.2 2.3 -1.4 1.8 -21.6 2.1 7.3
IV 4.3 3.2 4.9 3.6 15.5 2.5 5.5
I 5.2 2.8 4.8 2.8 22.4 2.8 10.6
II 2.6 1.8 2.5 1.6 9.3 1.8 4.5
III 0.6 2.5 -1.2 2.6 -27.8 1.9 3.6
IV 3.1 3.6 3.9 4.3 -0.8 2.4 2.1
I 3.5 2.4 3.8 3.2 10.1 1.4 6.4
II 2.5 1.8 2.1 1.9 3.5 2.0 4.3
III 1.8 2.4 1.2 2.7 -13.4 2.0 3.0
IV 3.4 3.5 4.7 4.7 4.8 1.8 3.0
I 5.3 2.4 4.9 3.1 24.0 1.1 12.6
II 2.5 1.9 3.5 2.4 13.4 1.3 2.6
Consumer prices by group of goods and services
(since start of year on accrual basis, %)
Monthly inflation Core inflation Food price growth
Growth in food prices
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
April 6.5 3.3 6.7 4.4 30.8 1.6 13.5
May 7.3 4.0 7.9 5.1 36.1 2.1 14.4
June 8.0 4.4 8.6 5.5 40.6 2.4 15.4
27 2005 Q2
Statistical Addendum
Inflation Growth Structure (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 0.9 0.2 2.3 0.4 3.9 1.3 2.6
March 1.4 0.3 2.6 0.9 5.3 1.9 3.3
April 2.0 0.5 2.8 1.2 6.5 2.7 3.8
May 2.3 0.6 3.0 1.4 7.3 3.1 4.1
June 2.5 0.7 3.2 1.6 8.0 3.5 4.4
* Excluding vegetables and fruit.
** Growth in the prices of goods and paid services excluded from the core inflation calculation.
2005 Q2
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 0.2 1.2 0.6 0.7
March 0.5 0.1 0.3 0.5 1.3 0.6 0.7
April 0.6 0.1 0.2 0.2 1.1 0.7 0.4
May 0.3 0.1 0.2 0.2 0.8 0.5 0.3
June 0.2 0.1 0.2 0.2 0.6 0.3 0.3
* Excluding vegetables and fruit.
** Growth in the prices of goods and paid services excluded from the core inflation calculation.
29 2005 Q2
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 32.1 8.5 58.5 41.5
June 42.3 15.3 30.6 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 18.3 4.4 69.9 7.4 27.1 72.9
February 22.9 5.7 60.1 11.4 33.4 66.6
March 26.4 6.2 49.9 17.5 36.6 63.4
April 30.8 7.4 43.5 18.3 41.0 59.0
May 31.6 8.4 41.1 19.0 43.1 56.9
June 31.3 8.9 40.3 19.5 44.1 55.9
* Excluding vegetables and fruit.
** Growth in the prices of goods and paid services excluded from the core inflation calculation.
2005 Q2
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 15.6 25.3 8.7 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 18.3 4.4 69.9 7.4 27.1 72.9
February 32.3 8.4 39.8 19.5 46.4 53.6
March 36.4 7.7 21.1 34.8 46.1 53.9
April 50.0 12.8 15.3 21.8 60.9 39.1
May 37.7 16.9 20.9 24.6 60.0 40.0
June 28.0 14.4 32.3 25.3 54.7 45.3
* Excluding vegetables and fruit.
** Growth in the prices of goods and paid services excluded from the core inflation calculation.
31 2005 Q2
Statistical Addendum
2005 Q2
33 2005 Q2
Statistical Addendum
2005 Q2
35 2005 Q2
Statistical Addendum
2005 Q2
© The Central Bank of the Russian Federation, 2005
Research and Information Department