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The lower PPI is not expected to influence the consumer price index for the near future.
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Nov. 18, 2008
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Industrial Deflation Has Little Impact
Rosstat is delaying the publication of data on the state of industry in October, but a source in one of the agencies of the financial-economic bloc unveiled them yesterday, according to Interfax. The government receives data from Rosstat, the state statistics service, a day or two before their general release. Preliminary data indicate that the producer price index fell 6.6 percent in October, compared to September. That is the second month in a row that the PPI has fallen and most extreme fall ever recorded. It is much higher than what economists had predicted. In August, the PPI grew by 0.5 percent. In July, it grew by 5.4 percent, and in June by 4.9 percent.
The fall was steepest in raw materials production at 20.8 percent, following a fall of 15.8 percent in September. Price fell significantly in metallurgy. Producer prices for cast iron fell 21.7 percent, following 8.9 percent in September. Nitrogen and fertilizer compound production producer prices fell 0.6 percent after 2.6 percent. In toolmaking, the PPI fell 0.4 percent after 2.1-percent growth in September. The PPI for cars fell 0.4 percent after 0.1-percent growth in September. The PPI for foodstuff grew 0.2 percent in October and 0.3 percent in September.

In general, the falling PPI reflects falling raw materials prices. The price of oil fell 33 percent in October. The fall reflects even more the lower final demand for industrial products and growing supplies in warehouses and indicates that the economy is slowing down. The lower PPI is not expected to influence the consumer price index. Moreover, the greatest reductions in the PPI are in export sectors, any eventual consumer price reduction will be felt in the world market, rather than the domestic market. Entrepreneurial profit is the main source of investment in Russia, but the lower PPI will not lead to greater investment while demand is falling.

All the Article in Russian as of Nov. 18, 2008

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