Record tariff hikes after Thursday's elections
In October, the Central Bank and Rosstat promise an average 15% increase in housing and utility rates. This is a record increase in the last 17 years. However, the actual increase in some payments could be even greater.
Author: Tatyana Rybakova
Inflation in the last week of August was negative: minus 0,01%. August and early September are traditionally a time of deflation. This is the season for fruits and vegetables, vacations, and summer sales. Nevertheless, annual inflation at the end of August was 6,32%, although the Central Bank had forecast 6-7% for the end of the year. It looks like this forecast will not come true: in October, we are expecting the largest increase in utility rates since 2009.
Everything is falling apart
There's no need to tell Russian citizens about the problems of housing and utilities: there are few regions where residents don't face them. Rusty pipes, some of which are just tunnels in the ground, old equipment in boiler rooms, electrical substations, and power grids, the inability to properly repair imported equipment due to sanctions, and so on. These problems have long been discussed, and the government took A multitude of decrees and programs—in fact, the annual tariff increases for the third decade include investments in the modernization of public utilities. But things haven't moved on. And now, perhaps, attacks by the Ukrainian Armed Forces on electricity and heating facilities will be added: Ukrainian President Volodymyr Zelenskyy openly stated that his country would respond in kind in the event of similar Russian attacks on Ukrainian infrastructure.
It's also clear why, after three decades, a third of which the country was drowning in oil wealth, with tariffs steadily rising to the level of Eastern Europe, the utilities sector hasn't been brought into order. First, there's corruption. Housing and utilities are riddled with so-called hidden work, which is difficult to control and prone to corruption worldwide. They dug up old pipes, laid new ones, and buried them—and it's hard to figure out whether they dug up everything, which ones they actually buried (pipe quality varies), whether all the seams were properly welded and tightened, or whether the workers cut corners somewhere. This problem can be solved either by overseeing every stage of the work or by handing over the entire system to a single manager. In the latter case, the manager himself will be in control: he'll be responsible for repairs in the event of an accident, out of pocket. Much was made of this mechanism when it was first introduced for new toll highways, but nothing was achieved. One reason is that no one was prepared to take on such a responsibility for the old infrastructure. In all fairness, the state should have repaired and modernized everything at its own expense first—after all, the pipes and networks are falling apart due to its own fault. But the state only approved the programs…
How to poultice a dead person?
"The catch-up growth of tariffs, taking into account the need to implement investment programs and projects to modernize utility infrastructure, has led to indexation significantly exceeding the inflation rate this year and has contributed additionally to price growth," the Central Bank of the Russian Federation writes. In fact, since the beginning of the year, tariffs have increased slightly, by an average of 1,7%, reportedly solely to cover the increase in VAT, which has increased from 20% to 22% since January—incidentally, also reaching the upper European limit. However, of course, even then, tariffs for certain housing and utility services in certain regions increased. reached 30%.
Now they promise to raise tariffs by 8-22%, and counting The Central Bank estimates that the "hospital average" will be 15%. However, given how the average 1,7% has in some places reached 30%, let's try to estimate the true scale of the disaster.
According to by order According to the government, starting October 1, the largest average tariff increase will be in Stavropol Krai (22%), Dagestan (19,7%), and the Tambov and Tyumen Oblasts (17,5% and 17,2%, respectively). In Moscow, tariffs are expected to increase by 15%, and in St. Petersburg, by 14,6%.
But we remember that tricky word "average," right? Indeed: in certain municipalities, regional authorities have the right to increase tariffs above the established regional level! For example, in Perm Krai, the base indexation level will be 15%, but a "deviation" of another 14,9% is also permitted. In Tver Oblast, with a base indexation of 13,7%, an additional increase of 9,9% is possible. In Stavropol Krai, in certain municipalities, indexation by almost 1,5 times is possible: a 22% increase for the base rate and a 21,9% "deviation." You get the idea, right? The "average" will be around 15%, but in reality, tariffs could increase by as much as 1.5 times.
But that's not all! Limits are placed on the average increase for all tariffs. This has long been a tactic in the regions: for those utilities that are a small part of overall bills, minimum increases are set. But for the most significant ones, they go all out, adding a surcharge on top of the maximum. The main thing is that the total increase doesn't exceed the permitted amount. Mathematical tricks can help, for example, increase heating and hot water services above the maximum, and slightly less for water supply and sewerage. Try to avoid this or somehow reduce costs. If water meters are installed, many Russians have no way of adjusting radiators that are too hot in May—regulators on radiators are not particularly common. And what's the point, if heat meters are installed throughout the building, and only God and the management company know how they calculate it.
Traditionally, they're jacking up electricity rates to the max. And I wouldn't rule out the possibility that this year the government will allow, as an exception, to increase them by more than the maximum 22%. Even if there are no attacks by the Ukrainian Armed Forces on power facilities, one can claim that the money was spent on protecting them. Especially since such an order actually exists. But was there an anti-drone net over the substation, how much did it actually cost, were machine gunners patrolling the area—who's going to check? Especially if a drone actually destroys it.
There is no end in sight
If you think that this one-time tariff increase after the elections will be the end of it, then you are wrong. According to projections According to the Ministry of Economic Development, tariffs will increase by another 8,7% in 2027, 7,1% in 2028, and 6,1% in 2029. This represents a total increase of almost 36%, taking this year's figures into account. In reality, it's much higher: the Ministry of Economic Development's forecast for this year assumes a 9,9% increase in housing and utility tariffs from October 1, while we already know that the Central Bank's more recent forecast is 15%—and in reality, up to 30% in some places. So, it's not that far-fetched to assume that by 2029, housing and utility tariffs, taking compound interest into account, will double in some places.
According to the Ministry of Economic Development's forecasts, electricity prices will rise the most: by 15,3% in 2027, 11,2% in 2028, and 6,3% in 2029. In total, taking into account this year's growth, electricity prices will increase by 57%. This is due to "the implementation of major investment projects in the electric power industry," the ministry explains. However, as a result, we will likely catch up with Germany in terms of electricity production, and in terms of quality, it would be good if we remain at the current level.
Gas tariffs for households (which, I note, have already risen by 36,7% since the start of the war—Gazprom, after all, needs to recoup losses from the loss of Europe) will increase by another 36,9% over the next four years: by 9,6% from October 1, by another 9,1% in 2027, and by 7% each in 2028 and 2029. Thus, gas prices over the seven years since the start of the war, even according to the Ministry of Economic Development's conservative estimates, will have risen by 87%. That's if you simply add up all the price increases. And if you factor in compound interest (each subsequent increase is based on the amount already increased in the previous year), plus individual increases in certain regions... Overall, I'm afraid the Chinese will pay less for Russian gas than we do.
It's clear that all this will cause inflation. Tariffs are rising for businesses, too. Especially for small and medium-sized businesses: a factory might get a reduced tariff, but a local store or workshop might not. This means that consumer inflation will again grow faster than industrial inflation. For comparison, with overall annual inflation currently at 6,32%, the observed consumer inflationAccording to the Central Bank, the inflation rate is 15,1%. Considering that all indexations of social benefits, from pensions to maternity capital, as well as public sector salaries, are adjusted for general inflation, you can calculate for yourself how much poorer citizens will become. Previously, wealthy regions could count on additional indexation from them, but this year the term "wealthy region" is quite relative: even Moscow, undoubtedly a wealthy city, is experiencing a budget deficit.
Given that stagnation Every government agency is already aware of the economic situation, and adding rising inflation makes the situation completely hopeless. After all, inflation forces the Central Bank to maintain, or even raise, interest rates, which means expensive loans, which means another collapse of the civilian sector of the economy (the military-industrial complex issues loans at paltry rates of 3-5%). This means stagnation becomes "sticky," as economists say, just like inflation. Actually, there's another term for this economic situation: stagflation. The United States suffered from it in the 70s, until the then-chairman of the Federal Reserve raised the rate to 20%. After a brief crisis, inflation was conquered, and economic stagnation was overcome by President Ronald Reagan's reforms. Nevertheless, in the United States, the word "stagflation" still makes people shudder. I'm afraid the word will someday evoke the same reaction in Russia. And even with our Reagan, things aren't working out for us.
