Federal budget revenues may fall short amid disinflation and a strong ruble

RUSSIA ECONOMICS - In Brief 11 Aug 2025 by Evgeny Gavrilenkov

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In the seven days ending on August 4, Rosstat reported weekly deflation accelerated to 0.13% w-o-w (versus 0.5% deflation in the previous seven days). Rosstat also reported that the MTD deflation reached 0.07% as of August 4 while the YTD inflation fell to 4.37%. Given that the MTD inflation on July 28 was 0.71% it is likely that the m-o-m inflation in July as a whole could be close to 0.65% (to be officially published on August 13). Meanwhile, Minfin reported that in 7M25, federal budget expenditures grew by 20.8% y-o-y and amounted to nearly 60% of the yearly upwardly amended plan, implying that spending was moderately ahead of schedule. Note, that in the previous year, a budgetary spending spree was common in November-December, therefore fueling inflation at year-end. In 7M25, oil-and-gas revenues decreased by 18.5% y-o-y while non-O&G revenues grew by 14.0% y-o-y, i.e., well behind the expenditures. Hence, the increased deficit that exceeded in 7M25 the yearly target. The ongoing seasonally common deflation, associated with the harvesting season and falling food prices, will eventually come to an end, while disinflation y-o-y will likely continue. If so, then the likelihood that the government could again upwardly amend expenditures one more time will decrease, as disinflation will keep trimming federal budget revenues. If so, then odds that the CBR could cut the key rate below the widely expected 16% could increase.