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  • Further decrease in Eurozone inflation rates

    Photo by Karsten Würth on Unsplash According to the latest HCPI report, consumer prices in the Eurozone rose by 2,9%, year-on-year in October. This is the lowest inflation rate in the past two years, indicating a continued slowdown in inflation processes since reaching peak values in October last year. It's worth noting that in October 2022, the overall inflation rate was 10.6%, while in September this year, it lowered to 4.3%. Therefore, the Eurozone is gradually approaching the desired inflation target of 2% due to the central bank's tighter monetary policy, which encompasses high interest rates. The core inflation rate, which excludes energy and food, was at 4.2%, year-on-year. This difference between the overall and core inflation accounts for the 11.2% drop in energy prices. Let me remind you that energy costs were record high during the Summer and Autumn of 2022 as a result of Russia's invasion of Ukraine. Since then, Europe has diversified its energy sources, enabling it to better adapt to such stress factors. However, food prices continue to rise significantly, at a rate of 7,4%, although this is lower than September's figure of 8.8%. The level of inflation within the Eurozone varies greatly, ranging from 7.8% in Slovakia to -1.7% in Belgium. The reason for this variation is mainly due to the rising fuel prices in Slovakia, Slovenia, and some other countries. Additionally, the prices of food, alcohol, and tobacco in, e.g., Slovakia, have also increased by approximately 9%. The market was not surprised by this HCPI dynamics, however, it can be considered a positive signal ahead of the European Central Bank's next interest rate decision. This data may support the decision to maintain interest rates at their current level.

  • U.S. inflation continues to decline

    Photo by engin akyurt on Unsplash Data on consumer price dynamics in the US for October 2023 indicate a gradual slowdown in inflationary processes and provide cautious hope for a soft landing of the economy after the implemented monetary tightening. While the threat of a recession is not completely eliminated, the likelihood of this scenario is now lower than before. According to the US Bureau of Labor Statistics, the Consumer Price Index remained unchanged in October compared to the previous month. On an annual basis, it increased by 3.2%, which is lower than the September figure of 3.7%. The actual inflation figures turned out to be slightly lower than expected. For example, the Federal Reserve Bank of Cleveland's nowcast was at 3.28%. This is good news, and the stock markets have reacted accordingly. The reduced probability of an economic recession and the inflation rate approaching the desired 2% gives a cautious hope for a gradual reduction in interest rates next year. This, in turn, will stimulate overall economic growth, including within sectors that rely on borrowing such as housing. This optimistic scenario will have a positive impact on stock markets. However, it is important to remember that there are still factors of uncertainty and known risks, including geopolitical ones, which can affect the global economy.

  • Russian GDP may reach its pre-war level in mid-2024 unless sanctions intensify

    What drives the Russian GDP increase? The size of the Russian GDP is expected to return to pre-war levels by the middle of next year, thanks to the increase in military expenses [1]. The official numbers of expected military spending were recently raised to USD 100 billion for 2023. Social benefits also contribute to the growth of the GDP. For instance, every white Lada, a car sometimes granted to relatives of deceased Russian soldiers, adds to the overall GDP. While the Kremlin claims that there has been an increase in wages, there are videos showing barefoot Russian soldiers complaining about unpaid salaries. However, we may assume that many are still receiving their pay. This situation is unsurprising for a nation where almost 20% of the population lives below the poverty level. Of course, many begin to spend uncontrollably, driven by huge delayed demand. This increased spending also contributes to the growth of the GDP. Is it a game-changer? No The USSR had one of the largest GDPs in the world, thanks in part to the defense industry. However, this did not prevent its collapse, fortunately. GDP measures volumes and fails to account for efficiency or quality. It is also important to note that the reported GDP growth was a result of intensified utilization and redistribution of domestic resources, rather than a substantial inflow of foreign investments or a surge in export revenues [2]. Furthermore, certain countries keep supporting the Russian economy, whether covertly or openly, directly or indirectly, by buying its oil and gas including through grey schemes to bypass sanctions. Consequently, we cannot anticipate an immediate economic collapse in Russia. There is the North Korea scenario, as an example. The mass emigration of those who oppose the regime or just want to escape the conscription, and racism among the considerable part of the remaining population provides the Kremlin with ample opportunities to inflict suffering on its own people for the sake of threatening other nations. Therefore, it is necessary to intensify economic pressure on Russia with sanctions. Additionally, using naval drones to chase Russian warships in the Black Sea could prove to be a highly effective strategy from an economic standpoint [3]. What about the ruble? The country's balance of payments has already suffered from the decrease in export revenues, primarily due to the sanctions and other restrictions imposed on Russian energy products. Consequently, the ruble exchange rate has fallen. As the aggressor's economy receives less foreign currency, countering this trend becomes increasingly challenging. While the devaluation of the national currency may benefit export industries to some extent, the Russian population will be less pleased with the rise in wages when they witness an increase in the cost of imported goods and services. Moreover, the utilization of gray schemes to bypass sanctions, particularly through third countries, already adds additional transaction costs to the final price of goods. The devaluation of the ruble will further exacerbate this situation by pushing prices higher. Although the military industry may be less affected, the average citizen's wallet will once again bear the consequences of such an economic policy. What about human resources? A considerable number of Russians have chosen to leave their country. Although this group may not necessarily represent the bravest segment of the population, as they have opted for a safer form of protest rather than more effective means, their choice is not the most foolish either. Thus, in addition to this brain drain, the Kremlin's policies continue to deteriorate the working population by utilizing more and more Russians as cannon fodder. The recent decision to increase the conscription age for military service from 27 to 30 years will reduce the workforce further, starting from January 2024 [4]. It appears that the aggressor's economy is increasingly prioritizing the military sector.. The outputs of many other industries may be substituted by Chinese imports, while their human resources will be channeled to the army, to avoid increasing unemployment rates. Additionally, there is a possibility of supplementing the labor force with migrants, which typically leads to short-term reductions in labor costs. This may also improve the demographic situation, while many Russians will be sitting tranches far away from their homes. Looks like a plan for Kremlin. What shall be done? Підсумовуючи, варто підкреслити важливість посилення санкційного тиску, зокрема в частині виявлення та протидії російським схемам з обходження санкцій. Це дієвий інструмент, хоча результати не такі швидкі, як нам хотілося б. Також, морські дрони та повітряні бобри могли б стати суттєвим мультиплікатором санкційного тиску. Головне, завжди пам’ятати, що ніщо не ослабить рф так, як сильна Україна, тому продовжуємо донатити, боремося з корупцією в усіх її проявах та віримо в Сили оборони! На завершення хочу підкреслити, що значна частка згаданих вище економічних показників - офіційні дані кремля, а їх, як ми знаємо, хлібом не годуй - дай щось збрехати. Проте, суті викладеного це не змінює. In summary, it is worth emphasizing the importance of increasing sanctions pressure and implementing measures to stop Russian sanctions evasion schemes. While this tool is effective, it may not yield immediate results. Hence, Ukrainian naval drones could significantly enhance its impact in the near future. It is essential to always bear in mind that a strong Ukraine is key to weakening Russia. Federation. Therefore, we must continue to donate, show zero tolerance for corruption, and have faith in the Defense Forces. Finally, it is important to note that a significant portion of the economic indicators mentioned above are official data from the Kremlin, which may not be entirely trustworthy. References: Bloomberg. Russia’s War Economy Expands More Than Forecast Despite Sanctions Darya Korsunskaya and Alexander Marrow. Russia’s budget deficit in year-to-date widens to 1.8% of GDP. Naval drones vs Russian ships. One more point for the home team. The Guardian. Russia raises the maximum age of conscription as it seeks to replenish Ukraine forces

  • The inflation rate in Ukraine keeps slowing down

    The annual inflation rate for consumer goods (#CPI) in Ukraine was 17.9% in April 2023, indicating a slowdown in the price growth rate. For example, in January 2023, prices for the most common goods and services were 26% higher than in January 2022. However, it should be noted that in April 2022 prices were already high. Over the course of 12 months, food prices increased by 21.7%, with eggs, vegetables, and fish, experiencing the highest increases. Prices for fuel and oil rose by 24.2%, leading to a 22.5% increase in the cost of passenger road transportation services, while railway transport became only 5.5% more expensive to passengers. Compared to March this year, many food products and other goods and services decreased in price, for example, fuel and oil become 2.4% cheaper. Prices for eggs, sunflower oil, fruits, milk, and sugar also became cheaper, while meat prices increased by 3.3%. According to the State Statistics Service of Ukraine, pork was the main driver of this growth, given that its price increased by 7.4% during April 2023. Railway tickets became more expensive by 0.8%, while the cost of road transportation increased by 0.10%. Prices for pharmaceutical products were up by 1.2%, leading to an increase in prices in the healthcare sector. Source: based on data from the State Statistics Service of Ukraine.

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