Friday, November 16, 2007

Russian Inflation

Inflation in Russia in 2007 could exceed 11%, the director of the Economic Development and Trade Ministry’s macroeconomic forecasting department said Thursday.

Andrei Klepach told journalists that originally, inflation in 2007 was expected to reach 8% attributing the rise to structural factors like price hikes in staple foods, as well as monetary factors. Klepach said inflation in 2008 could exceed the 6-7% forecast. “We are currently specifying the inflation forecast for 2008. It looks like we won’t be within 6-7%,” he said. The ministry official also said the Russian government could restrict grain exports in 2008 to curb inflation. “We may impose a direct ban or introduce an export duty,” Klepach said adding that measures will depend on the market situation. He said grain exports were 3 million metric tons in October and if this trend continues, the government will consider additional measures to restrict exports. According to the economics ministry forecast, GDP growth in 2007 will reach 7.3-7.4%.

Russian consumer prices rose more than expected in October as sunflower oil, dairy products and other foods became more expensive.

Prices rose a monthly 1.6 percent, the most since January, compared with 0.8 percent in September, the Moscow-based Federal Statistics Service said in an e-mailed statement today. The median forecast of 18 economists surveyed by Bloomberg was for a 1.4 percent increase.

Russia, the world's biggest energy exporter, has struggled to curb accelerating inflation as petrodollars flood the country and global food prices increase. The inflation rate may rise to 11 percent this year, surpassing the previous year's rate for the first time since 1998, according to the Economy Ministry.

``The rising costs of basic commodities can no longer be offset by resilient labor costs and soft commodities,'' UralSib Financial Corp. said in an e-mailed research note before the figures were released.

President Vladimir Putin and several ministers said last month the government will be unable to meet their goal of lowering the inflation rate to 8 percent this year from last year's 9 percent.

Food prices increased a monthly 3.3 percent in October, led by sunflower oil which increased 26 percent in the month, the service said. Dairy produce rose a monthly 9.6 percent.

Food Effect

``The Russian government has recently taken a number of measures to control prices on foodstuffs, given that they account for more than a third of Russian CPI index,'' UralSib said.

The government approved a lower import duty on dairy and vegetable oil, sold some grain from the state reserves and instituted an export duty on grain to keep the commodity in Russia to curb consumer-price growth.

Companies including OAO Wimm-Bill-Dann, Russia's biggest dairy producer, and X5 Retail Group NV agreed last month to freeze prices on some milk, vegetable oil, egg and bread products until Jan. 31.

The anti-inflationary measures slowed price growth in the last week of October, probably keeping inflation from spiking until next year, said Yaroslav Lissovolik, the chief economist at Deutsche Bank AG's Moscow office.

Ruble Strength

The central bank may allow the ruble to strengthen at the end of this year or in the first quarter of 2008 to slow price growth, he said.

``The increase in government spending, which will improve the situation with liquidity, will place the central bank in a better position'' to use the ruble as an anti-inflationary tool, Lissovolik said.

Most Russians spend more than half their household income on food, according to the state-run Center for the Study of Public Opinion. Another 29 percent spend at least a quarter of their income on food, according to a survey released on Oct. 31.

Consumer prices increased 9.3 percent in January through October, compared with 7.5 percent in the first 10 months of last year, according to the statistics office.

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