Russian inflation modest in May, services prices still rise

Headline price growth in Russia remained notably low throughout April and May, a trend primarily associated with a considerable decline in prices for several products with volatile price dynamics, particularly fruit and vegetables.

Concurrently, prices for products predominantly influenced by demand, rather than transitory factors, either rose moderately on average or even experienced declines during May.

This development was partly attributable to the ruble's appreciation, which lowered the cost of imported goods.

Consumers observed price reductions in categories such as imported used cars, perfumes, and cosmetics.

Additionally, prices for washing and cleaning products, electrical goods and household appliances, communication devices, TV and radio goods, tools, and equipment continued their downward trajectory.

This broad-based softening in goods prices contributed significantly to the overall modest inflation figures reported for the period.

In stark contrast to the moderating trends in goods, prices for services continued to rise rapidly.

This persistent increase is driven by several factors unique to the services sector.

Households have limited ability to postpone consumption of many essential services, such as educational, medical, and personal care services, making demand relatively inelastic.

Moreover, the demand for services consistently outstrips the available capacities to scale up supply, a challenge exacerbated by persistent staff shortages across various service industries.

These structural imbalances ensure that service prices maintain their quick pace of increase, contributing significant upward pressure to the overall inflation rate despite the softening in goods prices.