Inflation In Russia

Bloomberg Today,

Russian Consumer Prices Rose 1 Percent in June on Food


July 5 (Bloomberg) -- Russian consumer prices rose 1 percent in June from the month before, the Federal Statistics Service said, confirming yesterday's comments by central bank Chairman Sergey Ignatiev.

Monthly consumer-price growth accelerated from 0.6 percent in May on food prices, the Moscow-based statistics office said in an e-mailed statement today. The median forecast of 17 economists surveyed by Bloomberg was for a 0.6 percent rate.

Russia, the world's 10th biggest economy, has entered its ninth consecutive year of growth. The government has struggled to bring inflation down to western European levels, as revenue from oil and gas sales, Russia's biggest exports, boost economic growth and wages.

``A lot depends on the growth of produce prices and the expansion of the money supply'' in determining this year's inflation rate, Ignatiev told reporters after briefing lawmakers yesterday at parliament in Moscow.

Ignatiev said inflation reached 8.5 percent in June, adding that the government will be able to bring the inflation rate down to 8 percent by year-end from 9 percent in 2006.

Prices of fruits and vegetables increased 12.2 percent in June, fueling inflation, the Federal Statistics office said. Prices of construction materials increased 1.5 percent in June and the cost of cement rose 5.5 percent in the month, the statistics office said.

Russia's money supply, or M2, expanded an annual 60 percent in May, reaching 10.7 trillion rubles ($420 billion), according to the central bank's figures.

Capital Inflows

``One of the culprits in rising inflationary pressures has been the record high capital inflows,'' Deutsche UFG said in an e- mailed research note today.

Capital inflows reached a record $67 billion in the first half of the year, spurred by the assets sales of OAO Yukos Oil Co. and share sales of VTB Bank and OAO Sberbank, according to Ignatiev.

Capital inflows will probably moderate in the second half of the year when higher government spending is likely to fuel inflation, Deutsche UFG said. Inflation will probably surpass the official target, reaching 8.3 percent for the year, it said.

``We expect Russia's higher budget spending to be jacked up ahead of election and sustain inflationary pressures at high levels,'' Deutsche UFG said. Russia will hold parliamentary elections in December and a presidential election in March.