Russia GDP and Inflation 2007

Russia's economy expanded last year at the fastest pace since 2000 as a record flow of money into the country spurred capital investment and a consumer boom. Growth, at an annual 8.1 percent, beat government forecasts and compared with a revised 7.4 percent rate in 2006, according to the Moscow- based Federal Statistics Service today.




The pace is faster than the government and economists expected, with Finance Minister Alexei Kudrin yesterday saying 2007 growth reached 7.8 percent. The world's biggest exporter of crude oil and natural gas has entered its 10th consecutive year of growth, boosted by rising incomes and consumer spending. Net capital inflow almost doubled in 2007 to $82.3 billion.

At the same time end of year inflation was running at 11.9% in Decemeber 2007.

Russain Retail Sales December 2007

Russian retail sales growth accelerated in December for a second straight month as revenue from energy sales boosted wages and spending. Retail sales grew 16.7 percent in December from a year earlier, compared with a revised 15.5 percent in November, the Moscow-based Federal Statistics Service said earliertoday. Sales jumped 20.3 percent from a month earlier because of holiday shopping. For the year, retails sales grew 15.2 percent.




Wages increased an annual 16.2 percent in December, reaching 18467 rubles ($754), the Statistics Service said. Real wages grew 16.2 percent in 2007, compared with the year before. Disposable income increased an annual 9.4 percent in December and rose 10.4 percent in 2007, it said.

Russia Inflation December 2007

Russia's inflation rate rose in 2007 to the highest in four years in December as the government proved unable to put a brake on food prices and wages even while investment soars. The rate for the year rose to 11.9 percent from 9 percent in 2006, the first time that the rate has surpassed the previous year since 1998, the Moscow-based Federal Statistics Service Rosstat said today. Consumer prices rose 1.1percent in December, compared with a 1.2 percent advance in November.



Russia, the world's biggest energy exporter, has struggled to curb inflation as record oil income has boosted salaries and global food prices have increased. In an attempt to try to stop the upward march of food prices the government cut dairy and vegetable oil import duties, sold grain from state reserves and added a grain export duty. A number of companies even agreed in October to freeze prices on some milk, vegetable oil, egg and bread products until Jan. 31.

Food prices rose a monthly 1.6 percent, compared with 1.9 percent in November. Food price growth was led by fruit and vegetable prices, which slowed from November's rate of 6.2 percent to 5.6 in December, according to the statistics service.

The Organization for Economic Cooperation and Development said in a December report that the Russian government's ``massive additional spending'' before elections also helped push up inflation.

Legislators approved additional budget outlays this year as the nation prepared to hold parliamentary elections on Dec. 2 and a presidential vote in March 2008.

Merry Xmas and A Happy New Year

Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.



Credit crunch, did someone use the expression credit crunch?

Inflation and Wages, Onwards and Upwards We Go

The Russian government plans to submit amendments to the federal budget to keep its promise of increasing the wages of government employees, Prime Minister Viktor Zubkov told Russia's newly elected lawmakers today.

"I especially underline the importance of passing amendments to the budget to increase the wages of government employees and military personnel," Zubkov said in a speech before the State Duma lower house of parliament in Moscow today. "We should strictly fulfill all our promises to citizens,'' he told the Duma's opening session in remarks broadcast live on state television. Higher-than-anticipated inflation this year has made it necessary to budget extra funds for salaries, he said.

The Russian parliament has already approved an increase in government spending this year of about 2 percent of gross domestic product as part of the preparations for the parliamentary elections held on Dec. 2 and for the presidential vote which is due in March 2008. President Vladimir Putin, who has said he's ready to serve as prime minister beginning next May under his chosen successor, Dmitry Medvedev, said on Dec. 19 that the 2008 budget increase was essential to retain the "trust'' of the people.

Now far be it from me to criticise politicians for keeping their electoral promises, but there are promises and promises here, and some promises are simply populism and demagogery, especially if they involve effectively printing money to fuel ongoing inflation.

Russia's inflation rate rose to a two-year high in November, driven in part by unavoidable increases in the price of fresh fruit, vegetables and other food items, but also fueled by growing labour shortages as the 6% odd growth which the Russian economy is experiencing put pressure on a labour supply which is under great strain due to Russia's unusual demographics (a full analysis of this problem can be found in this post).

The inflation rate rose to 11.5 percent in November, the highest since October 2005, up from 10.8 percent in October, and there is certainly no sign in the immediate future of all this letting up.

The Russian government's "massive additional spending'' this year is pushing up inflation, according to the OECD. The OECD raised its forecast for Russian inflation up to 11% for this year and 9.5% for next year, from an earlier 7.5% for 2007 and 6.5% for 2008 as a result of the country's relaxed monetary conditions and tightening labor market, according to their twice-yearly economic outlook published earlier this month.

"The government's attempt to damp inflation by imposing artificial restrictions
on retail prices, both at the federal and regional level, appears to be
ill-advised," the OECD said. "Such steps create new distortions without
addressing the underlying roots of inflation."

The OECD identified private consumption and fast rising real wages together with credits to households as the main engine of growth., noting that massive net capital inflows, which aren't sterilized, and an unemployment rate that has fallen below the historic low of 6.0%, have played as big a part as food prices in boosting inflation.

So today's statement by Viktor Zubkov only pours additional oil onto already troubled waters. Russian wages have increased considerably in recent years, and the average monthly dollar wage (see chart below) has increased from around 175$ a month in 2003 to approxiamtely 500 dollars a month at the end of September 2007, including a 31 percent increase in the first nine months of 2007 as the rouble continued appreciating against the US dollar. The current trends suggest that the average monthly dollar wage at the end of December 2007 may exceed USD 520.



According to Rosstat, average real wage and disposable income increased by 16.2 and 12.9 percent, respectively during the first nine months of the 2007 (see chart below). Increases in real wages continues to be well above growth in GDP - and evidently well above productivity growth - in most sectors of the economy. Almost all sectors of the economy are now reporting increases in nominal wages well above 20 percent during 2007.



And there is no immediate end to this in sight. Conceptually we could think of Russia being about to have a very large version ofthe "Baltic problem" (the canaries down the coal mine). All you need to do is make a mental switch and replace capital inflows from oil lying under the ground for the people working out of the country in the Baltic (or Bulgarian, or Romanian, or Polish, or Ukranian) case. Both mechanisms produce a large inflows of funds, which go to work in domestic sales and construction. Since we are short of people in each case, then this surge in demand naturally squeezes up wages and then rapidly makes exports non-competitive. As a consequence the country involved becomes more and more dependent on imports.

Call this the Baltic syndrome if you will, and plagiarising an old adage, we might say that once the Baltics sneeze it is the global economy which catches the cold.

Amazingly, we are brought to the conclusion that if inflation continuies at this pace, and the rouble does not fall to compensate, then Russia could eventually have a trade deficit, even with all the natural resources she has in play, and at the rate we are going this point may not be too far away. What we need to bear in mind is that while global oil prices may drop back slightly (depending on whether and to what extent there is a slowdown in global growth in 2008), they are unlikely to continue to rise at the same pace as they have been (imagine a US consumer facing oil at $200 a barrel) and so since Russian oil capacity is, at best, more-or-less constant (due to depletion issues), Russia cannot continue to rely so heavily on oil exports for continuing growth (and as living standards rise oil revenues will gradually and inevitably come to consitute a declining share of GDP). And this will become doubly the case if the rouble is allowed to rise (as it must be at some point) since the roublevalue of the oil revenue will become accordingly less.

Really, if you want to understand more about this very important problem, my lengthy analysis of Russia in Too Much Money Chasing Too Few People is a must read.

Russia Inflation November 2007

Russia's inflation rate rose to a two-year high in November as the prices of fruit, vegetables and other food prices surged. The rate rose to 11.5 percent, the highest since October 2005, up from 10.8 percent in October, according to data released todat by the Federal Statistics Service.



Economy Minister Elvira Nabiullina indicated that the Russian government anticipate that consumer prices will increase an annual 12 percent this year, compared with last year's 9 percent rate. The Russian government's ``massive additional spending'' before this years elections also helped push up inflation by stoking up additional demand the Organization for Economic Cooperation and Development said earlier this month in a report. Legislators approved additional budget outlays this year as the nation prepared to hold parliamentary elections on Dec. 2 and a presidential vote in March 2008.

For a full and extensive analysis of the dynamics of Russia's growing inflation problem see this post here.

Russia Q3 2007 GDP

Russia's economy expanded an annual 7.6 percent in the third quarter, faster than many economists had been expecting. This followed a 7.8 percent expansion in GDP in the second quarter, the Moscow-based Federal Statistics Service Rosstat said on its Web site today.



Russia, the world's biggest energy exporter, is enjoying its ninth consecutive year of economic expansion, boosted by revenue from energy sales and rising wages. The economy will expand at least 7.3 percent this year, up from 6.7 percent in 2006, according to the Economy Ministry's forecasts.