The Bank of Russia has warned that to control inflation threaten the growing level of inequality and reduction in the number of families with an average income level that are most sensitive to interest rates and prices, according to the Agency Bloomberg with reference to the statistics of the Central Bank in September, which should be published on Wednesday, October 19.

According to this, the drop in retail sales in Russia continues a record 21st straight month. At the same time, according to the median forecast polled by Agency economists, real disposable incomes are falling annually by 7%.

Over time, continuing for two years of recession, the middle class of Russia decreased by 14 million people, show the results of the latest consumer survey from Sberbank CIB. Consumer spending was falling, while wages did not keep pace with increase in cost of living.

The disappearance of this stratum of the population, which flourished during the oil boom is a historic reversal after double growth under Putin. Many Russians are now enjoying the state support programmes in addition to declining revenues, and sensitive to changes in fiscal policy.

“Shrinking middle class is bad for the control of inflation as rising risks from fiscal policy,” says a former adviser to the Central Bank Oleg Kuzmin, chief economist IK “the Renaissance the Capital” in Russia in Moscow. “The demand will be more sensitive to budgetary decisions”, because any support would have an immediate effect, increasing the demand among vulnerable segments of the population.

Although the widening gap between rich and poor affects consumption, and, according to the International monetary Fund, the preservation of the middle class positively affects economic growth, income polarization of the population has a less obvious effect on the policy of the Central Bank.

The deepening social inequality weakens price elasticity of demand and complicates the control of inflation, according to the Central Bank. Less wealthy families who usually do not postpone savings and have limited access to credit, tend to buy the commodities and almost do not react to changes in interest rates.

More wealthy households also did not react, because what you spend on basic commodities only a small part of their income.

Bloomberg: the Central Bank sees threat in the growth of inequality and the shrinking middle class in Russia 19.10.2016

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