CC BY
3DOI: 10.29141/2658-5081-2022-23-2-7 EDN: LPUKJM JEL classification: E31, E52, G18
Polina S. Kuklinova Ural State University of Economics, Ekaterinburg, Russia
Vladimir V. Ilyashenko Ural State University of Economics, Ekaterinburg, Russia
The impact of the inflation-targeting regime on the economic development of an industrial region
Abstract. The priority goal of Russia's monetary policy is keeping inflation close to the target. Within the inflation-targeting regime, the monetary policy is adopted at the national level and therefore, is uniform for all regions of the country. However, differentiation of inflation rates between regions characteristic of Russia's economy gains even greater importance under the enacted policy, because inflation targeting produces different effects on the sustainability of the economic development of regions with different industrial structures. The paper aims to study the impact of the inflation-targeting regime on the economic performance of the Sverdlovsk oblast, which belongs to old industrial regions. The methodological basis of the research consists of the theoretical propositions of economic theory and macroeconomics. The authors use correlation and factor analysis, methods of observation and comparison. According to the findings, implementing inflation targeting since 2015 has permitted to reduce inflation and keep it down in the Sverdlovsk oblast. However, it has also contributed to the deterioration of the key indicators reflecting its economic development. The study concludes that despite being effective in terms of reducing inflation, the said regime impedes sustainable economic development of the industrial region.
Keywords: regional inflation; Sverdlovsk oblast; industrial region; monetary policy; inflation targeting.
For citation: Kuklinova P. S., Ilyashenko V. V. (2022). The impact of the inflation-targeting regime on the economic development of an industrial region. Journal of New Economy, vol. 23, no. 2, pp. 125-141. DOI: 10.29141/2658-5081-2022-23-2-7. EDN: LPUKJM. Article info: received January 21, 2022; received in revised form February 25, 2022; accepted March 4, 2022
Introduction
The prime goal of monetary policy in the Russian Federation is keeping inflation close to a target level. To attain it, since 2015 the Bank of Russia has been implementing monetary policy within the framework of the inflation-targeting regime, pursuing a set of measures uniform for the national economy. It is worth mentioning that the influence of such a policy on the economic development of the country's regions varies depending on their industrial structures.
The Sverdlovsk oblast as a constituent entity of the Russian Federation and part of the Ural Federal District is the largest industrial centre of not only the Urals but the entire country and is among the leading regions in industrial production. The most developed industries in the Urals are ferrous and non-ferrous metal industries and mechanical engineering. The defence industry dominates in the structure of the latter. Another developed industry is heavy individual mechanical engineering (the equipment for mining, power and chemical industries). In addition, the oblast is also a major transport hub having the Trans-Siberian Railway and important air, railway and motor routes of the nationwide importance passing through it.
The study aims to assess the effects of inflation-targeting tools on the economic performance indicators of the Sverdlovsk oblast as an old industrial region.
To achieve the said purpose, the following objectives are to be accomplished:
• to analyse the dynamics of inflationary processes unfolding in the Russian region under consideration;
• to identify the factors of regional inflation and determine their transformation;
• to juxtapose the indicators characterising the economic development of the industrial region before and after the introduction of the inflation-targeting regime.
Theoretical approaches to analysing the effect of monetary policy on the regional economy
Regional factors are of great importance when it comes to explaining the spatial heterogeneity of the socioeconomic processes occurring in the national economy. However, the impact of monetary policy on the economic situation in the regions and regional inflation, as well as the factors of its development, have not been sufficiently studied in scientific literature.
Typically, the inflation-targeting regime is evaluated at the national level. Interestingly, while transitioning to this regime, its introduction by the Bank of Russia caused many conflicting opinions [Andryushin, 2014; Woodford, 2014; Altunyan, 2015; Gla-zyev, 2015, 2016; Trunin, Bozhechkova, Kiyutsevskaya, 2015], but as time passed, most of the authors provided positive assessments of this process [Kudrin, Goryunov, Trunin, 2017; Zamaraev, Kiyutsevskaya, 2019; Drobyshevskiy et al., 2019].
The issue of the impact of monetary policy on the regional economy was first raised by Mikhail Zhemkov, who analysed the structural differences in regional inflation when reaching and maintaining the all-Russian price growth rates at the target level. Based on the results of the study, regional heterogeneity of inflation was discovered and factors of inflation deviations in the region from the national average were identified [Zhemkov, 2019].
An assessment of the effect that monetary policy had on investment in Russia showed that the impact of monetary policy shocks was stronger in the regions with the largest share of manufacturing, construction, and agriculture in their GRP [Shevelev, Kvaktun, Virovets, 2021; Napalkov, Novak, Shulgin, 2021]. A number of researchers highlight that there are no obstacles to implement a uniform monetary policy in terms of the range of interregional prices [Sinelnikov-Murylev, Perevyshin, Trunin, 2020].
The issues of interregional differentiation of inflation rates, including in the Russian Federation, are debated mainly by foreign authors [Gardner, Brooks, 1994; Masi, Koen, 1996; Goodwin, Grennes, McCurdy, 1999; Brown, Haas, Sokolov, 2018]. Most of the research papers are devoted to the heterogeneity of the inflationary dynamics of the Eurozone countries and the US regions [Arnold, Kool, 2004; Beck, Hubrich, Marcellino, 2009; Tasos, 2021]. Some studies deal with differentiation of regional prices in Spain [Alberola, Marqués, 2000; Topan et al., 2020], Turkey [Duran, Dindaroglu, 2021], Italy [Vaona, As-cari, 2012], Poland [Gajewski, 2018], Indonesia [Utama, Wijaya, Lim, 2017], and African countries [Ajide, Alimi, 2021]. As for publications by Russian researchers, their numbers in the domain under consideration are insignificant.
An analysis of regional inflation using the case study of the Kuzbass economy demonstrated the predominance of all-Russian factors over regional ones [Melkov, 2020]. The study of indicators reflecting the regional aspect of inflation in 2015 revealed the dominance of cost inflation factors compared to demand inflation during this period [Ilyashenko, Kuklina, 2017]. An assessment of the role of regional and industry-related factors in the development of inflation in Russia proved the high significance of relative changes in commodity prices [Deryugina et al., 2019].
Some authors [Kiseleva, Ilyashenko, 2015] focus on the factors and dynamics of inflationary processes in the Sverdlovsk oblast. The study of these processes within the general equilibrium theory made it possible to identify technological shocks in the sector of non-tradable goods as a key source of interregional differentiation in inflation rates [Serkov, 2020].
An overview of theoretical approaches to studying interregional differentiation of inflation and the impact of monetary policy on regions' economy proved that this issue was poorly examined and there was a lack of publications on the effect of monetary policy on the economy of the Sverdlovsk oblast.
Within the given research, we look at how the tools of monetary policy implemented in the inflation-targeting regime influence the key macroeconomic indicators of the Ural region and create conditions for its sustainable economic growth.
Inflation dynamics in the Sverdlovsk oblast
Consumer price indices at the federal and regional levels are calculated using uniform methodological principles that provide for weights' formation for computing indicators and the calculation of individual, aggregate, group and composite price indices.
At the level of the constituent territory of the Russian Federation, the calculation is carried out based on the consumer spending structure for this territory in accordance with the modified Laspeyres formula1:
Yi) = 1 (Prj, t-l Qrj.tO *IrJ,ti/t-l)
Irt/t-1
Prj,t-l Rrj,
to
where Irtl/t0 is a composite index of consumer prices and tariffs for a group of goods (services) in a constituent entity of the Russian Federation r in January of the reporting year compared to December of the previous year; Irt/t-1 is a specified index in the reporting month compared to the previous month; prJ/t0 qrj,t0 is consumer spending on the purchase of the j-th representative product (service) in the base period; prjit-1 qrjit0 is consumer spending on the purchase of the j-th representative product (service) of the population in the constituent entity of the Russian Federation r in the base period in the prices of the previous month; Irj, tl/t0 is a price (tariff) index for the j-th representative product (service) of the population in the constituent entity of the Russian Federation r in January of the reporting year compared to December of the previous year; Irji t/t-1 is a specified index in the reporting month compared to the previous month.
In general, the dynamics of the consumer price index in the Sverdlovsk oblast and the Ural Federal District is similar to the dynamics of the nationwide CPI (Figure 1).
However, in some periods between the early 2000s and 2021, there was a slight deviation of the consumer price index from the CPI for the whole country, usually upwards. Its maximum value in the Sverdlovsk oblast was recorded in 2000: inflation in the region neared 24 %, while the inflation rate across the whole country was 20 %. In 2001, the index value equalled 120.1 %, which was 1.52 percentage points higher than the national rate. Following the crisis of 1998, when inflation in the region reached 94.46 %, until 2005 there was a decrease in its rate, i.e., disinflation.
1 On approval of the official statistical methodology for monitoring consumer prices for goods and services and calculating consumer price indices: Order of the Federal State Statistics Service (Rosstat) of December 15, 2021 no. 915. http://www.consultant.ru/document/cons_doc_LAW_404082/. (In Russ.)
Russian Federation
Sverdlovsk oblast
Ural Federal District
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fig. 1. Consumer price indices for goods and services in the Russian Federation, the Ural Federal District and the Sverdlovsk oblast, % compared to December of the previous year1
After 2001, the highest inflation in the Sverdlovsk oblast was recorded in 2008 and amounted to 14.8 %, which was also 1.52 percentage points higher than the national rate. If compared to 2007, the level of regional inflation increased by 2 percentage points. The strong rise in prices throughout the region during this period was attributed to the crisis processes in the economy, depreciation of the national currency, and increased inflationary expectations.
Stabilisation of the economic situation in 2009 and a slight strengthening of the national currency resulted in a rather substantial (by 5.89 percentage points) decline in regional inflation, which by the end of the year amounted to almost 9 % in the Sverdlovsk oblast. Similar changes were observed in the national economy. At the end of summer and beginning of autumn of the year under review, the region witnessed insignificant deflation, which was generally typical of this season and caused by falling prices for agricultural products and foodstuffs.
One year later, the CPI in the Sverdlovsk oblast increased again (by 1.06 percentage points compared to 2009, which exceeded the all-Russia rate by 1.2 percentage points). The modest increase in regional and national inflation occurred against the backdrop of partial economic recovery and the growing aggregate demand, as well as government, consumer and investment spending.
Over the next two years, the inflation rate in the Sverdlovsk oblast was relatively stable. However, the currency crisis of 2014, the fall in world oil prices, and the growing political and foreign instability, which resulted in the introduction of economic sanctions and the rapid devaluation of the ruble, provoked an increase in regional and national inflation.
1 Source: own representation based on the statistical data from Rosstat. https://rosstat.gov.ru/price.
In 2014, the inflation rate in the Sverdlovsk oblast once again amounted to a double-digit number reaching 10.59 % at the end of the year. In 2015, amid the crisis unfolding in the country, there was an increase in inflation: the consumer price index rose by another 3.45 percentage points and reached its maximum (114.04 %) over the past five years. Inflation in the region exceeded the national rate by 1.13 percentage points.
Such high rates of price increases can be due to the foreign economic and political situation becoming increasingly complicated and, consequently, due to the recession and depreciation of the national currency, rising inflationary expectations, capital outflow, increased monopolisation of retail chains, and embargo on exports and imports [Bochko, 2014].
In 2015, the Bank of Russia completed its multi-year transition to the inflation-targeting regime. Since 2016, inflation in the Sverdlovsk oblast and the Russian Federation as a whole has stabilised, and the deviation of the regional rate from the one for the whole country has become less significant (in the period up to 2021 inclusive, the gap between the rates was less than 1 percentage point).
Differentiation of inflation rates is also characteristic of the other constituent entities of the Russian Federation that are part of the Ural Federal District (Table 1).
Table 1. Consumer price indices in the constituent entities of the Russian Federation that are part of the Ural Federal District, %, December to December of the previous year
Oblast 2012 2013 2014 2015 2016 2017 2018 2019 2020
Kurgan 107.32 105.88 112.02 114.01 105.58 102.46 104.36 103.21 105.91
Sverdlovsk 107.31 106.95 110.59 114.04 105.78 102.23 103.86 103.65 104.24
Tyumen 105.48 105.94 108.66 112.63 106.88 102.68 102.37 102.49 103.63
Chelyabinsk 106.33 105.36 109.86 111.97 104.86 102.32 103.48 103.06 104.56
Note: Tables 1-5 are based on the statistical data from Rosstat. https://rosstat.gov.ru/price.
In the midst of the decline in inflation rates caused by the transition to the inflationtargeting regime, the problem of differentiating these rates across regions has has become even more relevant. For instance, with high inflation in 2015, the deviation of its maximum level from the minimum in the Ural Federal District amounted to 2.07 percentage points, and with low inflation rates in 2020, the deviation was 2.28 percentage points.
Transformation of inflationary factors in the Sverdlovsk oblast
Examining the factors of regional inflation is of high importance for the development of an effective anti-inflation policy, since the correct choice of its tools depends on the prevailing type of inflation and the current economic climate.
To identify the factors fuelling inflation in the Ural region and to perform correlation analysis, we have used quarterly indicators, since monthly data, not to mention yearly
statistics, fail to produce consistent results. Monthly data do not take into account the delayed impact of certain factors on the dynamics of the regional consumer price index, while yearly indicators typically show an upward trend, that is, they do not reflect in which period of a given year the analysed indicators changed and what effects it had on regional inflation.
Thus, for the purposes of the study, we have calculated quarterly consumer price indices in the Sverdlovsk oblast, reflecting the dynamics of regional inflation (Figure 2).
109.0
108.0
107.0
106.0
105.0
104.0
103.0
102.0
101.0
100.0 Quarter
1 ■ I | II I | | I I I 1
__L 1 ■ .1 l ll In.In Ll i
I HI I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III
CS CO in VO 00 ON o ?—i CS CO Ln VO 00 on o
o o o o o o o o f—1 ?—i ?—1 i—1 T—1 f—1 1—1 l f—1 I—1 cs
o o o o o o o o o o o o o o o o o o o
<N <N CN CN <N CN CN <N <N CN CO cs CM cs <N CM CM <N cs
Fig. 2. Quarterly consumer price indices in the Sverdlovsk oblast in 2002-2020, % compared to the previous quarter1
Our calculations demonstrate that the CPI growth within each year in the Sverdlovsk oblast was unsteady: in 2000-2011, the index reached its highest value in the first quarter, with its maximum recorded in January (106.55 % in 2002; 106.26 % in 2003; 103.15 % in 2004; 105.32 % in 2005; 105.86 % in 2006; 103.64 % in 2007; 105.62 % in 2008; 104.94 % in 2009; 103.43 % in 2010; 104.26 % in 2011). However, in the next decade, this trend was disturbed (Table 2).
Table 2. Consumer price (tariffs) indices for goods and services in the Sverdlovsk oblast in 2000-2021 (January), % by the end of the previous month
January, 2000-2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
102.81 102.41 104.44 103.38 101.25 102.56 103.30 101.84 102.71 102.76 102.13
January, 2011-2021
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
102.64 100.42 100.87 100.39 104.68 101.06 100.69 100.21 101.03 100.07 100.81
1 Note: Figures 2-4 are based on the statistical data from Rosstat regional office of Sverdlovsk and Kurgan Regions (Sverdlovskstat). https://sverdl.gks.ru.
Such changes are predictable and attributed to the dynamics of tariffs for products of natural monopolies. The fact is that since the early 2000s through 2011 prices and tariffs for electricity, housing and utilities services (HUS) and other types of material resources typically rose in January each year, but since 2012, this billing has been postponed to July as the most non-inflationary month. At that, in the third quarter of 2012, tariffs for products of natural monopolies in the Sverdlovsk oblast increased twice - in July and September. In subsequent years, the increase happened in July only. As a result, the highest value of regional inflation (2.8 %) was observed in the third quarter, and, interestingly enough, the lowest value of 1.06 % was recorded in the first quarter.
Accordingly, transferring tariff increases in 2012 from January to July violated the regular pattern. The only exception was the year of 2015; however, in this case, the maximum inflation rate in January was due to the crisis developments in the country's economy. Indeed, significant inflationary processes in the Sverdlovsk oblast and the entire country were first observed at the end of 2014, although such a trend was not typical of the previous periods. At that, after the fall in the regional inflation in the second quarter of 2015, consumer inflation increased following the rise in tariffs for housing and utility services in the third quarter.
The above analysis shows that in the Sverdlovsk oblast the growth of these tariffs plays an important part in establishing the rates of regional inflation (Figure 3).
140.0 130.0 120.0 110.0 100.0 90.0
Quarter
I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III I III
CS CO in VO r^ 00 OS o 1—1 cs CO Ln vo t-v 00 ON o
o O O o o o o o f—1 ï—1 1—1 1—1 f—1 T—1 i-H f—i T—1 i-H cs
o o o o o o o o o o o o o o O o o o o
<N <N CS CS cs CS CS CS cs CS CS cs CS cs cs CS CS CS cs
Fig. 3. Quarterly indices of housing and utility services tariffs in the Sverdlovsk oblast,
% compared to the previous quarter
The data from Figure 3 confirm the pattern indicated above. The most drastic increase in the HUS costs in 2002-2011, when the tariffs were to be increased in January, was observed in the first quarter. Since 2012, the highest growth rates of housing and utility services prices have been noticed in the third quarter, that is, the period of tariff increases.
In the other quarters of the period under review, the change in the consumer price index was insignificant.
This example clearly shows the determining role of cost factors in the development of inflationary processes in the Sverdlovsk oblast. To confirm this relationship, a correlation analysis was carried out using the Pearson linear correlation coefficient, which characterises the degree of linear relationship between two samples.
An eleven-year period, between 2010 and 2020, was used to perform the assessment. Our calculations proved a high correlation between the HUS tariff indices and the CPI in the region until 2012: the value of the correlation coefficient was 0.72 for the Sverdlovsk oblast and 0.78 for the Ural Federal District. For the data with 2012 included, an even closer relationship was recorded: 0.73 and 0.79 for the Sverdlovsk oblast and the Ural Federal District, respectively (Table 3).
Table 3. Results of the correlation analysis of the consumer price index in the Sverdlovsk oblast and the factors behind inflationary developments in the region
Indicator Correlation coefficient
2010-2012 2010-2020
Index of the housing and utility services tariffs 0.73 0.31
Index of railway freight transportation tariffs 0.73 0.57
Price index of production, distribution and transmission of electricity 0.6 0.19
Money supply dynamics -0.17 -0.18
US dollar exchange rate -0.23 0.6
For the data up to 2013 inclusive, the correlation coefficient slightly decreased, but the relationship between the indicators under study was still significant (0.7 for the Sverdlovsk oblast and 0.73 for the Ural Federal District).
However, the correlation coefficient for the period of 2010-2014 no longer exhibits a strong association between the indicators being analysed (0.51 and 0.62, respectively), despite it remaining quite noticeable. For the data with 2015 included, a weakening relationship is found (the correlation coefficient is approximately 0.3 in both cases). This confirms the patterns identified above: the surge in inflation in late 2014 and early 2015 was due to the emerging crisis developments in the economy.
It is noteworthy that the growth of tariffs for housing and utility services even with its significant contribution to the regional inflationary processes is not always a factor of decisive importance. Until 2013, its role in the development of the inflationary scenario across the region was predominant, but later there was a change in the inflation-causing factors.
The correlation coefficient for the whole period of 2010-2020 confirms the pattern revealed: its value demonstrates a moderate relationship between the HUS tariff indices
and the CPI (0.31 and 0.34 for the Sverdlovsk oblast and the Ural Federal District, respectively).
As an important railway hub, the Sverdlovsk oblast is interested in binding the index of railway freight transportation tariffs and the consumer price index. Indeed, the calculations performed show that the relationship between these indicators is rather close: the correlation coefficient for the entire eleven-year period under study is 0.57. The relationship until 2012 was especially significant (the coefficient value was 0.73). The growth of railway freight rates, among other things, has a direct impact on the consumer price index in construction, and hence on inflationary processes.
The change in the dominant inflationary factors in the region is also evidenced by the analysis of the relationship between the price indices in the generation, distribution and transmission of electricity in the Sverdlovsk oblast and the regional consumer price index. The correlation coefficient for the Sverdlovsk oblast for the period under review amounted to only 0.19 (for the Ural Federal District it was 0.23), which indicates that the relationship between these indicators was weak. However, the examination of the cross-influence of the earlier indicators (before 2012) shows a significant correlation between the regional CPI and the price indices in the generation, distribution and transmission of electricity (the coefficient equalled 0.6).
To investigate the dependence of the regional consumer price index on the key monetary factor of inflation (the money supply dynamics), we calculated the correlation coefficient for these indicators in the Sverdlovsk oblast. The coefficient's value for the period of 2010-2020 was -0.18, which indicates a weak correlation between the indices being analysed. Over the past six years, the influence of this factor has slightly increased (the correlation coefficient for the period of 2015-2020 was -0.26), but the relationship has still been inverse, as for the Ural Federal District (these coefficients were -0.16 and -0.24, respectively).
To establish the extent to which external economic factors affect inflationary processes in the region, the correlation coefficient was calculated between the quarterly foreign exchange rate dynamics (US dollar and euro) against the ruble and the quarterly consumer price index in the Sverdlovsk oblast. Based on our calculations, this factor proved to be significant: for the entire period under review, the correlation coefficient of the regional CPI and the US dollar exchange rate was 0.6 and the euro -0.44. Recently, there has been an increase in the role of this factor. For example, the correlation coefficient of the CPI and the US dollar exchange rate for the period of 2015-2020 is equal to 0.73, which points to a significant positive relationship between the indicators in question.
The above analysis allows us to arrive at the following conclusions.
Firstly, the inflationary factors in the Sverdlovsk oblast are subject to transformation: if until the middle of the given period the prevalence of the cost inflation factors was obvious,
now their role is changing towards external economic inflation. Secondly, the monetary factor is not a determining one in the development of inflationary processes in the Sverdlovsk oblast: its influence has a reverse effect on inflation, i.e., the growth of the money supply does not result in an increase in the regions general price level, but, on the contrary, contributes to some decrease in it, which indicates the dominance of inflation costs.
The prevailing type of inflation should be considered when implementing anti-inflation policy, since measures aimed at suppressing one type of inflation may encourage the development of its another type.
Assessing the effect of the inflation-targeting regime on the inflation level in the Sverdlovsk oblast and the key macroeconomic indicators of the region
As noted above, the uniform monetary policy in the Russian Federation is currently being implemented in the inflation-targeting regime.
An analysis of the measures introduced in 2015 shows that they managed to significantly reduce and stabilize inflation rates in the region. If between 2000 and 2015, the average inflation rate in the Sverdlovsk oblast was 12.05 %, since 2016 the consumer price index has dropped sharply, amounting to 105.78 %. At the end of 2017, inflation in the region was only 2.23 % and subsequently, until 2021, did not exceed 5 %.
In general, for the period from 2016 to 2020, inflation in the Sverdlovsk oblast averaged 3.95 %. Thus, the inflation-targeting regime has yielded positive results in terms of the impact on the regional CPI. It was not until 2021 that, amid the intensification of the coronavirus-caused crisis, inflation in the Sverdlovsk oblast significantly exceeded the target, reaching 8 %.
However, keeping the inflation rate within certain low limits does not mean providing conditions for the socioeconomic development of the region. In this case, the central tool of the relevant monetary policy is the key rate, which is raised by the Bank of Russia in order to reduce inflation and inflation expectations in the country. At that, the growth of interest rates in the economy leads to a decrease in investment costs, since there is an inverse relationship between these indicators.
A key rate of 5.5 %, introduced on September 17, 2013, remained unchanged until March 3, 2014, when, due to a strict monetary policy, it immediately increased by 1.5 percentage points, amounting to 7.5 %. Then, until February 2, 2015, the Bank of Russia was consistently raising the key rate, while instituting a restrictive policy. This period witnessed a planned transition to the inflation-targeting regime.
For investors, the growing key rate means a rise in interest payments on loans, on the one hand, and an increase in speculative demand for money, on the other. Both result in lower investment. Indicatively, since 2015, there has been a negative trend in investment in fixed assets in the Sverdlovsk oblast (Figure 4).
%
120 110 100 90 80
2015 2016 2017 2018 2019 2020
Fig. 4. Dynamics of investments in fixed assets in the Sverdlovsk oblast in comparable prices,
% to the previous year
In 2015, the investment volume in fixed assets in the region in comparable prices decreased by almost 15 % compared to the previous year. The fall in real investment in the Sverdlovsk oblast continued further, excluding 2018. This resulted in a slowdown in the region's economic growth. If between 2010 and 2015, the average GRP growth rate of the Sverdlovsk oblast reached 6 %, then over the next five years it was less than 1 %.
Growing rates make borrowing less attractive and savings more profitable. As a result of a restrictive monetary policy introduced in 2014, the volume of commercial lending to resident businesses and sole traders in the Sverdlovsk oblast displayed zero dynamics against the backdrop of a 16 % increase in the previous year. Over the next two years, this trend was negative, while in 2015 the decrease in lending exceeded 24 %, even in nominal terms.
Moreover, in the mining industry, the volume of lending in the region in 2014 decreased by 45 % compared to the previous period, in which the same indicator almost doubled. An even greater decrease in this indicator (63 %) was recorded in 2015, when there was also a fall in lending in manufacturing (by 13 %) and construction (by 22 %).
To evaluate the effectiveness of the inflation-targeting regime introduced in 2015 and its effect on the economy of the Sverdlovsk oblast, we looked at the regional dynamics of production indices. A production index is a relative indicator that characterises the change in the scale of production in the periods compared, and is used to analyse the dynamics of the physical volume of production.
Individual indices show the change in the output of one product and are calculated as the ratio of production volumes of this type of product in physical terms in the periods compared. Composite indices characterise the cumulative changes in all types of products and reflect changes in the value created in the production process as a result of changes only in the physical volume of manufactured products. This helps eliminate the impact of fluctuations in the country's general price level on the dynamics of this indicator. To calculate the composite index of production, individual indices for specific types
of products are gradually aggregated into indices for types of activity, groups, classes, sections, etc.
As noted above, the leading industries of the Sverdlovsk oblast are ferrous and non-ferrous metal industries and mechanical engineering. There are also other developed economic sectors in the oblast, such as mining, chemical, forestry, wood and light industries. In this regard, it is of particular interest to analyse the dynamics of industrial production indices of the Sverdlovsk oblast, as well as production indices in mining and manufacturing industries. The dynamics of the indicators under study is presented in Table 4.
Table 4. Production indices for certain types of economic activity in the Sverdlovsk oblast,
% to the previous year
Industry 2015 2016 2017 2018 2019 2020
Industrial production 97.9 100.6 106.5 100.0 103.4 102.0
Mining 97.7 99.2 100.7 99.4 98.5 103.2
Manufacturing 97.0 99.6 106.5 99.7 103.9 102.2
The industrial production index is an aggregate index of production by types of activity "mining", "manufacturing", "supply of electricity, gas and steam; air conditioning", "water supply; water disposal, organisation of waste collection and disposal, activities to eliminate pollution".
The data from Table 4 indicate that since 2015 the scale of industrial production in the Sverdlovsk oblast has decreased, and there is a negative trend in physical volumes of output. In 2015, the volume of industrial production decreased by more than 2 %. In subsequent periods, industrial production was characterised by stagnation. It did not increase until 2017, when a 6.5 % rise was observed. At the same time, in 2016 and 2018, industrial production showed almost zero dynamics, and in the last two years of the analysed period, its growth rate was low with slight inflation.
Interestingly, in prior periods with a higher level of inflation, the growth rates of industrial production were higher. So, for example, the year of 2000 saw the highest inflation in the Sverdlovsk oblast (almost 24 %) over the twenty-one-year period. However, in the same year, the region exhibited the highest growth rates of industrial production (17 %) for the specified period. Such an intensive growth was noted back in 2010, also against the backdrop of a fairly high inflation rate of10 %. In general, excluding the crisis periods of 2008-2009 and 2014, the growth rates of industrial production in the Sverdlovsk oblast were higher than after the introduction of the inflation-targeting regime.
Even more negative dynamics is noted for the industries, such as mining and manufacturing. The production index in mining in the Sverdlovsk oblast showed a slight
positive trend only in 2017 and 2020 (0.7 and 3 %, respectively). In other periods, there was a decrease in the physical volume of production for this type of economic activity.
In the manufacturing industry, the production index also decreased, averaging only 1.48 % in the period under review. In 2015, 2016 and 2018, its dynamics remained on a downward trend. At the same time, the average growth rate of the production index for manufacturing between 2010 and the introduction of the inflation-targeting regime in the Sverdlovsk oblast was more than 7 %.
The index of machinery and equipment production in the region demonstrated almost zero dynamics in 2015, although against the backdrop of the highest inflation for the entire period, the real volume of production in this industry increased by more than 35 %.
Thus, the inflation-targeting regime helped reduce inflation in the Sverdlovsk oblast and keep it low. However, the measures introduced led to a deterioration in the key indicators of the region's economic development. Since the early 2000s, contrary to the monetarist theory, inflation rates decreased annually, despite the rise in aggregate demand: there were high growth rates of investments in fixed assets and real incomes of the population, and relatively high growth rates of the money supply.
Conclusion
A distinguishing feature of inflation in Russia is its high interregional differentiation. The presence of regional inflationary factors leads to stable deviations in the rate of price growth in the constituent entities of the Russian Federation from the national level. At the same time, the inflation-targeting mechanism implies maintaining stable low inflation throughout the country.
Having analysed the key macroeconomic indicators reflecting the performance of the Sverdlovsk oblast, we can state that the implementation of monetary policy in the inflation-targeting regime, with the exception of serious crisis periods, is able to curb inflation. However, the tools applied for this purpose do not contribute to maintaining the sustainable economic growth of the region, considering its industrial structure and the stage of economic development.
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Information about the authors
Polina S. Kuklinova, Sr. Lecturer of Economic Theory and Corporate Governance Dept., Ural State University of Economics, 62/45 8 Marta/Narodnoy Voli St., Ekaterinburg, 620144, Russia Phone: +7 (343) 283-10-78, e-mail: kuklinova_ps@usue.ru
Vladimir V. Ilyashenko, Dr. Sc. (Econ.), Prof. of Economic Theory and Corporate Governance Dept., Ural State University of Economics, 62/45 8 Marta/Narodnoy Voli St., Ekaterinburg, 620144, Russia
Phone: +7 (343) 283-10-78, e-mail: k-45409@planet-a.ru
© Kuklinova P. S., Ilyashenko V. V., 2022
