Inflation in Russia: above 10%?

Experts doubt that inflation in Russia will only reach 10% by the end of the year, as forecasted by the government. Inflation had started growing quickly from the beginning of the year: in January, prices rose 2.6%, in Q1 they went up another 5.3%, and reached 8% by July 2005.

A combination of factors - an increase in utility tariffs, rapidly rising food prices, and higher industry tariffs due to skyrocketing oil and oil product prices - has had an unpredictably huge influence on consumer prices.

Experts said the government and related ministries would have to take a lot of largely administrative measures, but even in that case, prices would rise by more than 10%. "Inflation is unlikely to be contained at 10%," said Valery Vaisberg of the Region investment group. "I think 12%-12.5% is a realistic inflation rate for this year."

Vaisberg said food products and consumer services would be the main reasons behind inflation growth in the September-December period, and oil companies' decision to freeze gas prices would hardly influence inflation. "Inflation is traditionally lower in the second part of the year, but the seasonal drop in food prices has already passed, and prices will start growing soon," he said.

Vladimir Pantyushin, an analyst from the Renaissance Capital investment company, said inflation would exceed 11.9%, but its growth was currently being contained by administrative levers. Vladimir Tikhomirov, chief economist at the Uralsib financial company, said, "This seems to be a tough task - achieving 10% inflation will require a lot of sacrifices."

Tikhomirov said utility tariffs needed to be frozen ahead of the heating season, and Russia had to make early payments on part of its foreign debt and allow for a sharp appreciation of the ruble.

"Ten percent is not a realistic target," he said. "The Economic Development Ministry said inflation would be 11%, which is a more realistic forecast, on the condition that those levers are employed." Tom Adshed of investment company Metropol said real inflation would deviate from the target by 0.5%-0.8% this year. He said the government had set a target of 10% and could find ways to ensure it. However, those would be administrative measures that would eventually run out.

Adshed said Russia was not the only country using such methods, but unlike others, it lacked a capital market to distribute funds, and the country had done nothing to improve the market, RIA Novosti reported.

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