Translated material
Heatstroke
Rising gas prices will push up inflation more than expected
The government is inclined to abandon its intention to reduce inflation in the next three years to the levels recorded in the previously approved socio-economic development forecast for 2007 and the forecast parameters for the period until 2009. This was acknowledged by Finance Minister Alexei Kudrin, giving a lecture to students at the Academy of Budget and Treasury of the Ministry of Finance. “We wanted less (than 6% by 2009 - Ed .), but this will not be possible due to the increase in gas tariffs,” the minister said.The Cabinet of Ministers has paid special attention to the fight against inflation in recent years. This year, for the first time since economic reforms in Russia, it will be possible to reduce the growth rate of consumer prices to single digits. Today it is obvious that by the end of this year inflation will not exceed 9%. At least, this figure is contained in the updated forecast of the Ministry of Economic Development. However, judging by Mr. Kudrin’s words, further plans to reduce this indicator will not be implemented. Let us recall that in 2007 the inflation rate was expected to stop at 6.5-8%, in 2008 - 4.5-6%, in 2009 - 4-5.5%.
The government and the Kremlin, having analyzed the reasons for the worsening gas shortage on the domestic market, which is already directly restraining the pace of economic growth, considered it necessary to increase prices for this type of fuel. Even, as has now been confirmed, at the expense of a tactical retreat on the inflation front. Recently, Mr. Kudrin justified this choice by the fact that “domestic gas consumption should be break-even.” Now, Gazprom’s external revenues continue to cover losses from gas sales within the country. In turn, the head of the Ministry of Economic Development and Trade German Gref believes that maintaining low gas prices on the domestic market will make the Russian economy uncompetitive.
The Cabinet of Ministers plans to increase the price of blue fuel gradually . Thus, in 2007, the maximum growth level for all categories of consumers, including the population, will be 15% (this year for the population - by 11.9%, for industry - by 10.5%). In 2008, gas prices will rise for the population by 14%, for other categories - by 25%. In 2009, prices for the population will increase by no more than 13%. Only by 2011 is it expected to achieve equal profitability of gas prices on the domestic market in relation to export prices (minus customs duties and transportation). At the same time, according to the head of the Ministry of Industry and Energy Viktor Khristenko, even if equal profitability is achieved, the domestic gas price will be 43-45% lower than the export price.
However, even if the government’s plans do not intend to ensure equal income solely at the expense of the population, Russians should not relax. And not only for those who own a gas stove. Rising gas prices will inevitably lead to higher prices for electricity. Today, thermal power plants (TPPs) generate approximately 65% of electricity. Moreover, almost 70% of such stations operate on gas. In the future, some of the gas thermal power plants are expected to be converted to fuel oil and coal, but the costs of modernization will also need to be “recaptured.”
Economists have long traced the entire chain: after gas and electricity, transport services, where the share of railway transport is large, will become more expensive. Next are products that have a large transport component, including food, etc. etc. Travel on public transport, for example, in minibus taxis, will also become more expensive, since in many cities it has been switched to gas due to its current cheapness compared to gasoline. (The share of minibuses in public transport in large cities, including Moscow, is about 40%.) The Federal Tariff Service plans to double the price of gas automobile fuel next year. As a result, it will almost reach the level of gasoline prices.
As Victoria Voronina from the Economic Expert Group told Vremya Novostei, the analysis of the impact of rising prices for gas and electricity on inflation in 2007-2009 has not yet been completed. It is possible that during the calculations some other inputs included in the current forecast of socio-economic development will also be changed. For example, the ruble exchange rate may be revised. “There are many parameters at work now,” says Victoria Voronina. She named the most preliminary forecast: 2007 - 8%, 2008 - 7%, 2009 - 6-6.5%. And these indicators, according to her, “are achievable with a stretch, but subject to a fairly strict monetary policy.” By the way, the director of the Department of Macroeconomic Forecasting of the Ministry of Economic Development and Trade, Andrei Klepach, admitted in early December that the inflation forecast for 2008-2009 would have to be increased by 0.3-0.5% due to changes in energy tariffs.
Troika Dialog analyst Anton Struchenevsky agrees that next year inflation will exceed the forecast level and reach 9-9.3%. However, the reason, in his opinion, is not the rise in prices for gas and electricity, since “the share of housing and communal services in the overall inflation picture is not so large, especially since the increase in tariffs in this area next year will be moderate.” “The main reason is fiscal policy,” the economist told Vremya Novostey, recalling that in 2007 government spending will grow by a record 23%.