The Central Bank of the Russian Federation in Moscow
Photo: Ivan Makeev
| Other Photos |
 |
|
 |
Inflation: What Went Wrong?
The government and Central Bank's pride that inflation has been falling for ten years has been crushed, as inflation in 2007 sets the country back to the level of 2004, when it was 11.7 percent. The original estimate for this year was 7-8 percent. Inflation in the first quarter was just 3.4 percent, compared to 5 percent in the first quarter of last year.
The first sign that all was not well came in April, along with a worldwide spike in food price. Inflation reached 0.6 percent that month, higher than the previous April's 0.4 percent. In May, it again exceeded the previous year's rate, this time by 0.1 percent (0.6 percent in 2007 vs. 0.5 percent in 2006). Experts were still predicting 8 percent for the year.
June gave officials a real shock, however, with 1-percent inflation, compared to the previous year's 0.3 percent. They blamed the growth of the money mass, higher costs of fruits and vegetables (exacerbated by a ban on foreign traders in open-air markets imposed on April 1) and grain and bread prices (exacerbated by world grain prices).
The Ministry of Economic Development and Trade first hinted that inflation may exceed the 8-percent maximum target in its July report on the second quarter. It officially acknowledged that possibility only in October.
The Economics Ministry and the Finance Ministry have had along disagreement over whether money supply or structural disproportions lead to inflation. Finally, they agreed: each reinforces the other. This was confirmed in September and October when world milk prices drove up Russian prices. The EU was blamed for that misfortune, for canceling subsidies to dairy producers.
The current forecast for inflation in 2008 is 6-7 percent. A revised estimated will be provided by the Economics Ministry on December 1. Experts have no doubt that the current target will not be met.
www.kommersant.com
|
|
|
