The politics of inflation

Hello! This week our top story is Russia’s biggest interest rate hike in 7 years amid growing fears of an inflationary spiral. We also detail a bombshell media investigation suggesting officials hid four out of every five COVID-19 cases, and why details of the gaudy mansion of an allegedly corrupt traffic cop were likely leaked online.   

Biggest interest rate hike in 7 years as inflation bites

Russia’s Central Bank raised interest rates Friday by a whole percentage point, the biggest upward move in seven years as officials seek to stop price increases spiralling out of control. There are growing worries that — as people anticipate price rises — they will opt to spend rather than save and fuel an inflationary cycle. Given the approaching parliamentary elections, the government is under intense pressure to resolve this issue.

• In a widely anticipated move, the Central Bank raised the key interest rate from 5.5 percent to 6.5 percent. This had been seen as all-but inevitable since the annual inflation rate reached 6.5 percent last month, its highest level since mid-2016.
• Explaining the decision, Central Bank head Elvira Nabiullina said economic growth was accelerating (several sectors apparently are showing signs of overheating), inflationary pressures were greater than the bank anticipated, and inflationary expectations were increasing.
• The key question is how long the inflationary trend will continue. There are many factors contributing to rising prices, but the Central Bank believes the public’s inflationary expectations are critical. Nabiullina’s comments put this reason front and center. And she pointed out that growing inflationary expectations trigger a self-perpetuating cycle in which, because people foresee prices rising, they stop saving and start spending — which pushes up prices even further.
• Inflationary expectations in June (the most up-to-date figures available), came close to record levels with a median of 11.9 percent (2 percentage points higher than the average over the last three years). For comparison, after the collapse of the ruble in January 2015, the figure was 16.6 percent. The first data for July suggests things are getting worse: the median is up to 13.9 percent.
• Rising prices are unwelcome anywhere, but in Russia it’s a particularly important political question – last month, for example, President Vladimir Putin gave over a chunk of his annual call-in show to a detailed explanation of why bananas from Ecuador cost less than home-grown carrots. The authorities have already introduced several price control measures: retail prices on some goods have been frozen and export tariffs were introduced on food products.

Why the world should care

The Central Bank’s announcement was widely expected and was already factored into the price of government bonds — and it’s still unclear whether Russia is actually heading for a long-term increase in inflation. However, it is clear the authorities are ready to throw the kitchen sink at rising prices in the build-up to parliamentary elections.

Investigation suggests officials hiding real COVID-19 numbers 

Journalists from three independent media outlets — Meduza, Kholod and Mediazona — published an investigation Tuesday alleging the Ministry of Health has a secret record of over 29 million cases of coronavirus in Russia. That’s almost five times higher than the official figures and would put Russia third in the world for number of infections. The response from the authorities only succeeded in muddying the issue further. 

What happened?

• For three weeks this month, Moscow’s restaurants only allowed entry to people with a QR-code that included a unique serial number — and confirmed their vaccination status. These codes were also available to anyone who had recovered from COVID-19. The starting point for the investigation was a suspicion the codes and serial numbers were not being randomly generated.
• So, journalists from Meduza, Mediazona and Kholod started checking the unique numbers associated. It soon became clear that they were made up of a regional code, the date when the individual was diagnosed with COVID-19, and the code’s serial number on a special register.
• Then, the journalists started looking for the most recent certificates to be issued. One Mediazona reader — who was diagnosed with COVID-19 in March — gave reporters her QR-code. Based on the last eight digits of her number, 22 million people were placed on the register of confirmed COVID-19 before her.
• Another QR-code that they saw suggested that — by mid-July — the number of people who had recovered from COVID-19 was already over 29 million. A source in a federal agency confirmed to Meduza the figures were accurate.

What’s the catch?

• Despite the investigation, it’s far from clear how the Ministry of Health compiles its figures. One source told reporters the register was “inaccurate”.
• And a source in one federal agency told Meduza that each region decided for itself how to add names to the register and some of them might even have included suspected cases of viral disease SARS. 

What about the official figures? 

• The latest official figures on coronavirus state that Russia has seen 6 million cases. That’s five times fewer than the number indicated by the investigation.

What are the authorities saying? 

• After the investigation was published, officials hurried to refute the claims. It would perhaps even be fair to describe the response as ‘hysterical’. The federal agency coordinating Russia’s response to coronavirus said there were 29 million names in the register, but said this was the number of people vaccinated rather than who had had COVID-19. At first, the Health Ministry said the same.
• But journalists pointed out that the official vaccination figures contradicted this claim. For example, on the QR-code of a person diagnosed with coronavirus in February, the serial number was 17 million — but at that time, Russia had only produced 11 million vaccine doses and just a few million people had been jabbed.
• Then, the Health Ministry announced that the closed register actually included 39 million people — both diagnosed COVID-19 cases and fully-vaccinated individuals. It was unclear why, just a couple of days earlier, the Ministry of Health had been talking about separate registers for the two categories.

Why the world should care

There has never been much doubt the Russian authorities are manipulating coronavirus statistics. What is striking about the manipulation revealed by this investigation is the scale — and brazenness. It’s also striking that much-hyped digitalization creates problems for the authorities when reporters get access to electronic databases.

Corrupt cops and crimes against good taste 

The extravagantly tasteless mansion belonging to the head of a regional traffic police outfit was the butt of endless jokes on social media this week. The officer in question was accused of stealing $270,000 and is under investigation. The size of the haul — and the preposterous architecture — have led to suspicions the case came to light now as a way of channeling public anger about corruption before parliamentary elections.

• Alexei Safonov, the head of the traffic police in southern Russia’s Stavropol Region was arrested Tuesday along with several colleagues on accusations of corruption. Safonov has been in his post for 12 years.
• Investigators alleged Safronov and his accomplices were illegally selling documents required for the transportation of goods as well as personalized license plates, which had made them just under $270,000. 
• On the same day, photos of Safonov’s gigantic mansion complete with stucco mouldings, garish furnishings and gold-plated toilets appeared on messaging app Telegram. Images like this are often leaked by police operatives.
• Safonov argued in court that the mansion was not his, that it actually belonged to his partner, and that it was already finished before they started living together. The cost of the mansion is estimated at up to $160,000.
• Predictably, the story triggered a wave of public anger and plenty of jokes at Safonov’s expense. Many wags on social media said the theft may be understandable, but the suspect’s outlandish taste was inexplicable.

Why the world should care

Corruption can generate huge anger in Russia and its potential for political mobilization is understood by both opposition leader Aleksei Navalny (who started out as an anti-corruption campaigner) and the authorities. So, it’s unlikely to be a coincidence that such an extravagant corruption case has emerged in the run-up to September parliamentary elections –— no doubt it will be dealt with harshly and decisively.