Summary
Russian Ministry of Economic Growth and Trade anti-inflationary measures include monitoring of the state sector of economy for the first tome. A draft plan proposes that state companies' be monitored as one of 24 measures to contain consumer prices growth. Meanwhile the monthly inflation rate in January 2008 skyrocketed to 2 percent while the annual target is just 8 percent!
Analysis
With January drawing to a close, inflation in Russia continues spiraling. The Cabinet is forced to adjust its forecast and to acknowledge that the inflation will overshoot the 2 percent plank.
The government's moves to contain inflation have a classic bureaucratic nature - to establish new bodies and draft new papers instead of rapidly addressing the problem as such. Russian Prime Minister Viktor Zubkov directed to set up an ad hoc working group to deal with inflation lead by his Deputy and Finance Minister Alexei Kudrin. The Prime Minister emphasized that the initial proposals submitted by economic ministries are "inadequately meeting the goals of regulating inflation processes" and demanded drafting a new countermeasure program.
The government intends to withdraw former liberal practices in financial regulation and return to strict regulation. Particularly, it plans to resume regulating state companies' and banks' foreign borrowing and step up anti-trust legislation and policies. In addition, the government is pressing business, namely retail chains, to extend the already existing moratorium on prices on essential consumer goods.
All these measures ignore the main source of inflation in Russia - the galloping governmental spending, especially in the social and defense-related sector. Huge budget appropriations to boost salaries to numerous governmental employees, servicemen and law enforcers as well as a snowballing surge in pensions, doles and benefits will inevitably trigger inflation further on and make the new measures inefficient.
The 2008 federal budget passed in July 2007 set the 2008 inflation target at 7 percent. With over 2 percent in January only it is likely that the inflation in Russia in 2008 may well reach up to 15-20 percent.
