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17-07-2007 10:20:03  Rising inflation causes concern | |
 Consumer prices increased by 0.3 percent from July 1 to 10, the Economy Ministry reported on Friday. Officials expect July’s inflation to be 0.7 percent, the same as last year. They still hope that inflation will not rise above the planned 8 percent in 2007, but experts are becoming increasingly pessimistic, predicting inflation to exceed last year’s level of 9 percent. They accuse the government of fueling inflation expectations, which, in turn, feeds inflation. Inflation accelerated in April, and in June it jumped to 1 percent, against a mere 0.3 percent one year ago. Since the beginning of the year, prices have been rising amidst huge money supply growth. In the spring, an increase in fruit and vegetable prices also added to inflation. Vegetable imports have been declining since March, despite reduced import taxes. The Economy Ministry blames the decline on a ban on employing foreigners in retail trade in marketplaces, that came into effect on April 1. Russian President Vladimir Putin also expressed his concern at a government meeting last month. “Over the past few months, inflation has been rising faster than we planned. Some of the reasons are obvious, for example, rising prices for agricultural products,” he said on Thursday. Putin’s worries were confirmed on Friday, when Andrei Klepach, Director of the Economy Ministry’s Macroeconomic Forecasting, reported that inflation prices had risen by 0.3 percent within the first ten days of this month. “This is a lot. Apparently, it was for this reason that the Central Bank decided to support the ruble on Friday,” remarked Anton Struchenevsky, an economist at Troika Dialog. Klepach said July’s consumer inflation was expected to be 0.7 percent, unchanged from last year. But experts disagree, projecting inflation between 0.8 and 1 percent. “Based on inflation dynamics over the past three months, we have no reasons to expect a slowdown,” argued Igor Nikolayev, chief strategic analyst at FBK. “The basic inflation factors remain, and new factors emerge,” he added, pointing to a surge in producer prices (by 4.3 percent and by 5.3 percent in May), which will affect consumer inflation with a lag of one to two months. Rising producer prices have spurred inflation expectations. Nikolayev asserted they were provoked by the government’s decision to index the prices for natural monopoly products and housing and utilities services. Plans to significantly increase budget spending on development projects also played a role. “Inflation expectations are underestimated by the authorities,” Nikolayev said. He pointed to Sochi as an example, where prices soared after the city won the right to host the 2014 Winter Olympics. “If inflation does not slow over the next two months, the government will be unable to meet its 8 percent inflation target for 2007,” Struchenevsky said. Experts believe the Central Bank lacks effective anti-inflation tools: “Amid expectations of further ruble strengthening, the inflow of speculative capital will increase, which will exacerbate the monetary problem,” he warns. According to FBK, the government’s decisions, combined with rising prices and tariffs and other inflation factors suggest an inflation rate of 9-10 percent in 2007. To avoid such problems in future, the authorities could create an institute to assess the government’s decisions in terms of their impact on inflation, Igor Nikolayev reckoned. "Alliance Media" News Agency, based on the story by RBC 
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