Russia, the world's biggest energy exporter, is struggling to slow inflation ahead of March 2 presidential elections as revenue from oil and gas sales and global food costs push up prices. Inflation reached an annual 11.9 percent last year, above the percent government target. The central bank announced last week that it would raise its main interest rate from Feb. 4 by a quarter of a percentage point to 6.25 percent and increase reserve requirements but an increase of this order is more likely to increasethe inflow of funds more than it reduces growth. Much stronger measures would be needed, and I am not sure that there is the political will for this.
Russian Finance Minister Alexei Kudrin has said last year's record net capital inflow -- a broad measure of the money entering the country -- stoked inflation by swelling money supply. Inflow doubled last year to more than $80 billion, according to the central bank.
Retail sales grew 15.2 percent in 2007 while disposable income increased 10.4 percent, according to the Federal Statistics Service.
Food prices rose a monthly 1.9 percent, compared with 1.6 percent in December, according to the statistics service. The price growth was led by fruits and vegetables, which rose by 8.3 percent. The price of cabbage jumped 20.3 percent in the month, while the cost of potatoes rose 13.4 percent.
In a bid to rein in food prices, the government has cut dairy and vegetable oil import duties, sold grain from state reserves and added a grain export duty. Companies including OAO Wimm-Bill- Dann and X5 Retail Group NV agreed to extend a price freeze on some milk, vegetable oil, egg and bread products until May 1, but most of this becomes virtually laughable when you look at the scale of the problem.
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