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Inflation In Russia Goes Up
June 23, 2014 10:45


Inflation in Russia in May 2014 was 7.6% on an annualized basis, Rosstat reported. This is more than in April (7.3%) and ever in 2014. It is also above the key rate of Russian Central Bank and higher than inflation forecasts for the end of the year. The target of Central Bank is 5% +/- 1.5%.

On a monthly basis, inflation was 0.9% versus 0.7% in May of last year and 0.9% in April of current year. In the first five months, the inflation gained 4.2% against 3.1% last year. Experts interviewed by "Gazeta.Ru" admit that the data are disappointing. "The third week of May, when inflation accelerated to 0.3%, frightened us. Against this background, the monthly results were not so scary, but, of course, still not very good, chief economist of Alfa-Bank Natalia Orlova gave her comment. – I thought it won't be above 7.5% on an annualized basis.” According to her, now the market remains under the influence of ruble devaluation.

"Our citizens rush to consume when currency market becomes instable. In the first quarter we witnessed some kind of panic consumption," reminds the analyst. Food prices grew the most: 9.5% (May to May). Butter rose in price by 25%, milk and dairy products by 19.9%, fish by 11.8%, meat by 6.3%. "There was a significant reduction in milk supply, says the expert of the Economic Expert Group Maria Ivanova. – We do not cover their needs, but imports are more expensive due to exchange rate fluctuations." "At the meat market everything was more or less calm and stable until the last few months, but in April and May prices started moving sharply," Mrs. Ivanova notes.

Experts correlate the rise in prices of pork with ban on importing of this meat from the EU. "I think there are technical problems in trading with Ukraine, where the trade is just linked to agriculture", adds Natalia Orlova. Joining of Crimea to Russia will not have a significant impact on inflation expectations in the country, the first deputy chairman of Central Bank Ksenia Yudaeva explained in her interview with Bloomberg TV. According to her, Crimeans are a tiny part of the country’s total population, while the regional budget is only a small portion of the Russian budget. However, Mrs. Yudaeva recognizes that CB is also concerned about the increase in food prices in the Crimea.

It is too early to say that the Central Bank is unable to cope with inflation. "Nobody expects that increasing of refinancing rate will have effect right now. At the moment it is almost impossible to change the situation, taking into account that inflation has a non-monetary nature. The reason of the May price jump are the shocks in food markets," Mrs. Ivanova says. According to her, the CB has affected inflation expectations. "If there will not be any disruptions in the currency market, then those steps taken by the Central Bank will stabilize the situation," Mrs. Ivanova clarified. "The effect of the rates will be seen not earlier than next autumn," agrees Natalia Orlova.

Experts hope that in the second half of the year the rise in prices will be slower. "It is expected that inflation will decline from peak values with the beginning of the agricultural year in July. On account of the new crop, as well as due to the fact that devaluation effect is gradually eroding, plus, adjustable utility tariffs will not grow so much this year,"  Maria Ivanova said. "June will be very significant. If inflation in this month will be closer to 8%, this will be negative news. We will revise the forecast not earlier than in September. Because August and September are traditionally deflationary and they can compensate," Mrs. Orlova notes. YearIy inflation forecast by the Economic Expert Group is 6.5%. Mrs. Orlova's expectations are more pessimistic: 7%.

Europe has other problems: on Thursday, the European Central Bank (ECB) will decide how to accelerate inflation, which is far below the target 2% and tends to zero. It is possible that the ECB will introduce negative interest rates on deposits to stimulate the flow of funds into the economy.

Author: Anna Dorozhkina

Tags: Russian economy     

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