Import Price Reaction to the Ruble Exchange Rate and Leaving the Russian market by Foreign Suppliers

Abstract

The aim of the work is an empirical analysis of the ruble exchange rate pass-through into prices under reorientation of imports to suppliers from neutral countries due to the withdrawal of some suppliers from the Russian market. The motivation is related to the structural transformation of Russian foreign trade and the continued volatility of the ruble exchange rate. I collected a database of Russian imports based on statistics of the main trading partners. The data shows three periods since February 2022: a drop of import flows from all countries in February-April 2022; a period of reorientation (increase) of imports from neutral countries in May – December; and following general stabilization of trade. The result of econometric analysis at commodity-group level consistent with the hypothesis of reorientation of imports: the average growth rates of import prices from 'unfriendly' countries during the considered period significantly exceed the rate of price growth in the pre-crisis period. The difference is from 1.9 to 4.9 percentage points in a year basis. At the same time, there is no evidence in favor of the hypothesis of an increase in the growth rate of import prices from neutral countries during the crisis period. The main conclusion is that, by the end of 2022, the ruble exchange rate pass-through into import prices returned to the characteristic values of previous periods. This suggests that the current weakening of the ruble will affect import prices and lead to a reduction of imports volumes. The period of turbulence and reorientation of Russian imports has ended. Its result was a multiple drop in imports from 'unfriendly' countries and a higher increase in the prices of imports from them.

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