Russian central bank sees inflation risks rising in 2023

Reuters

Published Jan 31, 2023 07:14AM ET

Updated Jan 31, 2023 07:33AM ET

MOSCOW (Reuters) -Russia's labour market, budget and balance of payments will exert inflationary pressures in 2023, the central bank said on Tuesday, while the rouble's December weakening may also feed into price rises.

The Bank of Russia is widely expected to keep its key interest rate on hold at 7.5% at its first meeting of the year next week, with inflation gradually slowing but still well above the bank's 4% target. Households' inflationary expectations in January stood at 11.6%.

In a report on economic trends, the bank highlighted three key inflationary risks Russia faces as it tries to haul the economy out of its current slump.

"Inflationary pressures remain subdued, however pro-inflationary risks from the labour market, budget and balance of payments have increased," it said.

The bank also warned that the weaker rouble, which slumped in December as a price cap on some Russian oil products came into force, could feed into price inflation, particularly if Russia's trade surplus decreases significantly.

Initially dire predictions of a double-digit economic contraction in 2022 proved unfounded and the central bank said the economy had quickly adapted to last year's shocks.

But despite the shift to new supply chains and increased economic activity in sectors such as agriculture and consumer services towards the end of 2022, threats to Russia's long-term economic health remain marked.

"Staff shortages, technological limitations and weak external demand could slow the economy's transition to sustainable growth from the second half of 2023," the central bank said.