Regular wrote:Number of dollar billionaires up 11% in Russia last year, at the same time, the number of billionaires in Europe declined by four percent
This is a valid economic indicator and does not support the notion that Russia's economy is struggling. I suspect some sort of shenanigans
or serious errors in the GDP growth estimate. GKS uses a GDP deflator based on the CPI and PPI which are estimated by the CBR. The
CBR does not know what inflation is. Inflation can only be properly defined under an equilibrium pricing regime. Believe it or not but Russia
is still undergoing pricing transitions after 1991. It is 26 years later and the prices have not reached equilibrium yet. For example take
the price structure in military industry: six Project 636.3 boats for the price of one Japanese Soryu. The 636.3 is not six times cheaper
or less capable than the Soryu by an stretch of the imagination. Soviet style quid pro quo economic activity which was aggravated by
barter during the 1990s (due to massive payment arrears) has not completely disappeared. This is yet another price transient since replacing
these free services (like companies engaged in community support) will produce massive "inflation" in this sector.
The bottom line is that the CBR grossly overestimates the CPI and PPI by treating transition pricing as inflation. This is obvious nonsense
since Soviet prices and free services are not a valid reference point to define the price change. When the CBR was measuring an inflation rate
of 15% it was likely that the real inflation was 8% and the current 7% is more like 4-5% (the spread is shrinking, slowly). An overestimation
error in the PPI and CPI will introduce an error in the GDP growth:
The real GDP in year X is GDP in nominal rubles divided by 1+(w1*CPI+w2*PPI)/100, where w1 = 1-w2 are the fractions of consumer and industrial
sectors. If the CPI=PPI=10% according to the CBR but in reality CPI=PPI=7% then we have:
GDP/1.1 instead of GDP/1.07 or an error of 1.1/1.07 = 1.028 so the real GDP estimate is almost 3% smaller than in actuality; if the
GKS GDP growth is -1% then it actually +2%.
The GDP is really bound to the physical economy. Treating zero price activity as zero GDP is wrong. You have to estimate a price for
these transitioning sectors which reflects their market value and physical volume. If the physical volume decreases then the GDP contribution
shrinks and vice versa. So the adjusted price can be kept constant and adjusted year to year based on production or service volume.
This is a challenging thing to do, but that's just life. Pretending that the transition prices are inflation is simply wrong since under equilibrium
conditions price shifts reflect relative production volume contributions (same production, higher price => CPI/PPI increase which then offsets
GDP increase since GDP is about production and not price) while transition price increases do not indicate any production volume decrease.
The problem is that different parts of the economy have reached different levels of equilibrium and a single CPI and PPI is being used for
all these parts. If every price transition was on the same curve then the CBR methodology would be fine. But by using a globally derived
CPI and PPI which treats transition price increases as inflation, it overestimates real inflation in sectors closer to equilibrium. Even weighting
these different parts of the GDP by their size will not hide the distortion.