Publication: Monitor Volume: 7 Issue: 192

Progress on bringing down the rate of consumer price inflation was finally in evidence in the third quarter of 2001 following increased upward pressure on consumer prices in the first two quarters. The inflationary pressure earlier in the year stemmed largely from the relatively loose monetary policy pursued by the Central Bank of Russia (CBR) in the second half of 2000 and the aftermath of upward adjustments of regulated prices. Given the CBR’s limited ability to sterilize foreign exchange inflows, the growth in the money supply has been quite rapid, fueling inflation.

While the impact of a stronger ruble on the domestic prices of imported consumer goods helped to dampen increases in prices of domestic substitutes, the CPI reflected the upward movement of prices for household services. Up from a year-on-year rate of 20.1 percent in December 2000, consumer price inflation peaked at 25.0 percent in April and May of 2001. As upward pressures on prices lessened after mid-2001, the decline in the year-on-year increase in the overall CPI was aided by seasonal improvements in the availability of fresh produce, especially in light of this year’s bumper crops. By August, tighter monetary policy and declining prices of fresh fruit and vegetables had brought the year-on-year inflation back down to 20.9 percent. Goskomstat reported that eliminating the impact of lower prices of fresh produce would only have boosted monthly inflation to 0.8 percent. Prices of household services continue to increase more rapidly than other categories of consumer items. In January-August, the CPI rose 13.2 percent. Food prices increased 12.6 percent in the first eight months of the year, while prices of non-food items rose by only 7.9 percent. Prices of services, on the other hand, were up 27.4 percent during that period.

Producer price inflation, in contrast, has continued to decline modestly from the end-December 2000 figure of 31.6 percent. In the first eight months of 2001, producer price inflation dropped to only 17.3 percent. The most rapid increases in producer prices have come in the energy sector. Electricity prices were up 30.8 percent year-on-year. Natural gas prices rose by 58.0 percent. The cost of rail and pipeline transport also increased significantly in the period. In contrast, prices of non-ferrous metals declined by 6.1 percent and ferrous metals prices rose by only 0.7 percent in the first eight months of the year, reflecting trends in world market commodity prices (Goskomstat, October 2001).

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