According to the Central Bank, the impact of the increase in the VAT rate in Russia on the prices of goods and services remains uncertain. Annual inflation in Russia will reach its maximum due to the base effect in the spring months of 2019, then from the second half of the year it will decrease to 5-5.5% by the end of the year, after which it will return to the target value near 4% at the beginning of 2020. This is stated in the information and analytical material of the Bank of Russia about the dynamics of consumer prices.
“Annual inflation will reach its maximum in the spring months due to the base effect. According to the Bank of Russia forecast, from the second half of 2019, the annual inflation will decline and will be 5-5.5% at the end of the year, and then return to the Bank of Russia goal near 4% at the beginning of 2020”.
The authors of the comment note that annual inflation reached a historic low of 2.2% in February 2018. In addition, as reported by the regulator, inflation data for the first two weeks of January (a rise in prices of 0.7% from the beginning of the month, 4.7% in annual terms) is consistent with the base forecast of the Central Bank.
According to the Central Bank, the impact of the increase in the VAT rate in Russia on the prices of goods and services remains uncertain, and there is still uncertainty about the response of inflation expectations to a temporary acceleration of inflation at the beginning of the current year.
“At the same time, uncertainty remains regarding the impact of the increase in the VAT rate on the prices of goods and services, as well as the reaction of inflation expectations to a temporary increase in inflation in early 2019. The Bank of Russia will clarify its assessment of inflation risks and forecast as soon as statistical data are received”.
The main VAT rate in Russia from January 1, 2019 increased from 18% to 20%. The head of the Central Bank’s Research and Forecasting Department, Alexander Morozov, noted the day before that the economy as a whole reacted with restraint to the increase in VAT – its contribution to inflation leaves the upper range of the previous regulator's estimate of 0.6-1.5 percentage points.