A large part of Vladimir Putin's speech at the St. Petersburg International Economic Forum was devoted to criticizing the European Union which, in the Russian leader's words, “has finally lost its political sovereignty” and has failed to cope with economic problems. Admitting that such problems, including high inflation, exist in Russia as well, he noted that the Russian state has been able to protect the population from declining living standards:
“Experts estimate that the European Union's direct, 'countable' losses alone from the sanctions frenzy could exceed $400 billion over the coming year. Such is the cost of decisions divorced from reality and taken in defiance of common sense.
These costs are directly borne by the population and companies of the European Union. Inflation in some countries of the eurozone has already exceeded 20%. I was talking about our inflation, but the eurozone countries haven't conducted any special military operations, but inflation has increased anyway, up to 20% in some of them. The United States also has seen an unacceptable inflation rate, the highest in 40 years.
Yes, of course, inflation in Russia is also still in double digits. But we have already indexed social payments and pensions, raised the minimum wage and the cost-of-living allowance, thereby protecting the least well-off citizens. And high interest rates allowed people to keep their savings in the Russian banking system.
Businessmen, of course, understand: a high key interest rate puts pressure on the economy – it's understandable. For citizens, however, in most cases it's a plus: they have re-deposited a great deal of money with the banks at higher interest rates.
This is the main difference from the countries of the European Union, where higher inflation leads directly to the reduction of real incomes of the population and eats up their savings and low-income citizens bear most of the burden of the current crisis.”
To begin with, inflation exceeded 20% only in one of the EU countries, namely Estonia, in May 2022. In the eurozone as a whole, inflation rate in May was at its highest since the introduction of the single European currency, but it was only 8.1%. In May the European Commission reported that the rate of inflation expected by the end of the year was 6.1%. In Russia, in early June, experts interviewed by the Central Bank predicted a 17% inflation rate by the end of 2022, which is close to S&P's April estimates - 17.8%.
In the first quarter of 2022, according to Rosstat, expenditures of the Russians exceeded their incomes, meaning that their savings began to melt away. In mid-May, the Russian Ministry of Economic Development announced that the real disposable income will decrease by 6.8% in 2022. According to the ministry's forecast, it will be possible to reach the last year's level of income only by 2025.
Pensions of non-working Russians were increased by 8.6% on January 1, and by another 10% on June 1. Thus, in the first 5 months of the year pensioners received 108.6% of last year's pensions, while in the remaining 7 months they will receive 119.5%, and in general, the year-end payouts will increase by 11.5%, which is significantly less than the forecast inflation rate.
In addition, it is obvious that the less well-off a citizen is, the more of his income is spent on food. And the rate of growth of food prices in Russia exceeds the overall level of inflation. For example, according to Rosstat, annual inflation was 17.02% in May 2022, while food prices grew by more than 20% year on year, and fruit and vegetable products by 26.35%. It means that inflation in Russia has hit low-income groups of the population.