Translated material
Inflationary Millennium
Price growth in Russia returns to the level of the beginning of the century
One of the primary tasks that Vladimir Putin will have to solve as Prime Minister will be the fight against rising consumer prices . Moreover, the scale of the problem is approximately the same as it was at the dawn of Putin’s presidency. If the new government does not take any extraordinary measures, inflation at the end of the year may approach the levels of 2000-2001.According to Rosstat, inflation for the last week of April was 0.2%, and for the entire month, according to preliminary estimates, 1.4%. Thus, over four months the increase in consumer prices in the country will be 6.3%, that is, almost two-thirds of the annual government forecast. So far, the government and the Central Bank claim that they are able to keep inflation within 10% in 2008.
The authorities, apparently, are still in a kind of deadlock. Although price dynamics have acquired such a character that they directly affect not only the situation of low-income families, but also call into question important government investment programs. This is clearly evidenced by Vladimir Putin’s recent concern about the fate of the money from the state corporation, the Housing and Utilities Reform Fund. From this fund of 240 billion rubles. the regions have so far received only 8 billion. The remaining funds are on a low-interest deposit with the Central Bank. And Mr. Putin was worried that in such a situation, part of these funds would simply be “eaten up” by inflation. A partial solution could be to transfer the fund's funds to bank deposits. However, interest on bank deposits is still significantly lower than the inflation rate. And such “drying out” threatens the funds of not only this, but also other state corporations: investment plans generally do not fit well with the instability of such a macroeconomic indicator as inflation.
According to experts, price increases this year will exceed not only the budgeted figures, but also the results of last year. As is known, at the end of 2007, price growth was 11.9%, with the initial forecast of 8.5%. The range of expert estimates of inflation in 2008 ranges from 12 to 18%. At the end of 2000, inflation in Russia was 20.2%, and at the end of 2001 - 18.6%.
The forecast of socio-economic development for the next three years, on the basis of which the main budget indicators are calculated, has not yet been submitted to the government. Although I should have arrived there in the second half of April. If the government decides now to revise inflation figures again, this should happen with the approval of the forecast. At the same time, the Ministry of Economic Development is still finalizing a set of anti-inflationary measures. But the timing of its submission to the government is also unknown. It is only clear that this document will be submitted to the government of Vladimir Putin, and not Viktor Zubkov.
Economic Expert Group analyst Maria Kataranova sees the problem in the fact that the government does not yet have a common understanding of the causes of inflation. “As long as there is a discussion about monetary and non-monetary factors of inflation, and they are trying to fight it with fire measures such as temporary freezing of prices, the situation will not change,” she believes. “The government needs to develop a long-term, consistent and clear anti-inflationary policy that all government bodies would adhere to.”
On May 1, the ineffective agreement on freezing prices on socially important food products ceased to apply. And on Tuesday, at the last government meeting under the leadership of Viktor Zubkov, the issue of increasing tariffs on the products of natural monopolies will be considered. At the same time, Anton Danilov-Danilyan, head of the expert council of the public organization “Business Russia”, is convinced that if the rate of growth in prices for goods and services of natural monopolies is higher than the rate of inflation, and this is the case at present, then inflation will definitely approach the level of price growth monopolists.
So far, the only real step taken by the monetary authorities has been the Central Bank’s increase in the refinancing rate from April 29 to 10.5%. This is already the second increase this year. On February 4, the Bank of Russia already raised the rate from 10 to 10.25%, despite the fact that over the past four years the rate has been steadily decreasing.
According to Ms. Kataranova, the government should pay more attention to agriculture. We need a comprehensive program to increase the level of competition in food markets. According to Anton Danilov-Danilyan, the government is doing nothing to increase the competitiveness of Russian enterprises. It is necessary to reduce administrative barriers, fight bribery, and minimize outdated production requirements.