The Moscow Times reports double-digit overall inflation in Russia's future, with prices on the market basket of goods ordinary people can afford even higher:
Rising food prices swung to the top of the political agenda as Finance Minister Alexei Kudrin conceded Thursday that inflation could hit double digits this year, busting through the government's target of 8 percent. "We have not yet completed our own forecasts, so I turn to experts' views, according to which inflation could be about 10 percent," Kudrin told reporters.
With the State Duma and presidential elections looming on the horizon, rising consumer costs and spiraling inflation are emerging as political hot potatoes. Higher food prices were a dominant theme in President Vladimir Putin's televised call-in show Thursday, as several pensioners quizzed him on what he proposed to do about it. Putin announced that the government had started to sell grain from national reserves to ease domestic prices, a measure that comes on top of cuts in import tariffs on milk and other dairy products earlier this week. Putin also backed calls for a crackdown on local monopolies in the country's food markets.
Over the last year, milk prices have risen 16.5 percent, butter has risen 20.3 percent, vegetable oil 17.1 percent and meat 7.4 percent, Russian Newsweek reported Monday.
State television this week has shown footage of Prime Minister Viktor Zubkov checking food prices in stores, a visible sign to voters that the government is taking the hikes in food prices seriously. "I've noticed the change, but prices here are always rising," said Nadezhda Osipova, 68, a shopper at a Ramstore supermarket in northern Moscow. She added, however, that the store had "good discounts for the basics: sugar, salt and flour." Earlier in the day, Deputy Economic Development and Trade Minister Andrei Belousov said full-year inflation could be even higher than Kudrin suggested.
Soaring food prices were the main reason behind a rise in consumer prices of 0.5 percent in the first week of October, and 0.4 percent in the second, Belousov told reporters. Food accounts for more than 40 percent of the country's consumer price index. Analysts have said for some time that the government's 8 percent inflation target was looking increasingly unlikely to be met, but Thursday's comments were the first time officials have conceded that inflation could reach double digits. "It's not easy to acknowledge [higher inflation], particularly in an election year, when the political aspect of low inflation is crucial," said Julia Tsepliaeva, an economist at Merrill Lynch.
Agriculture Minister Alexei Gordeyev this week said the government was in talks with retailers and producers to freeze prices on "socially significant products," such as milk, vegetable oil and butter. Retailers have said they will introduce price freezes -- but only if manufacturers agree to do the same. In an open letter to Zubkov this week, the Russian Union of Dairy Companies asked the prime minister to consider their position, Kommersant reported. "We think that the adoption of measures on a federal and regional level to limit prices of dairy products is undesirable, as it represents yet another attempt to solve the population's social problems at the cost of the countryside," the letter said. Zubkov has hinted that rising food prices are down to more than rising costs, while the Federal Anti-Monopoly Service says it is investigating the country's six largest dairy companies over price collusion.
Shoppers at the Rizhsky market in northeast Moscow echoed this. "Prices have risen because the people who work at the bazaar have artificially raised them," said Valentina Maksudova, 75. "I believe in Putin. He will help fix the problem with the prices." [LR: These idiots also had faith in Stalin.] During Thursday's phone-in show, Putin said some local authorities had given preferential treatment to intermediary companies, which has driven up food prices. "[Authorities] must create market conditions and not protect those they have a special relationship with," Putin said. Marina Kagan, head of corporate affairs at leading diary producer Wimm-Bill-Dann, said a lot of the talk about price collusion had been "emotional."
"We are working with the [anti-monopoly service] on this issue," she said.
Unimilk, the country's second-largest milk producer, appeared to fall into line with calls for voluntary price curbs, saying in a statement this week that it would freeze prices until the end of the year. Producers argue that food prices have increased because of unfavorable market conditions. Kagan said the company had been affected by a particularly dry summer in the country's milk-producing regions and higher global demand for powdered milk products. "We are in a dialogue with the government, but there are some factors that are beyond our control," Kagan said. "Currently, we are not planning any price increases before the end of the year."
But analysts said it was not so easy for producers to freeze prices as they grapple with cost rises of their own. "All of the producers over the last 18 months have been trying to deal with rapidly rising costs: transportation, personnel, advertising," said Brady Martin, a consumer goods analyst at Alfa Bank. "Their response has been to raise prices." While analysts concede that the government's measures on import and export duties could have an impact on inflation in the short term, there is concern that retailers are simply too numerous for any price controls to have a widespread effect.
Alexander Morozov, chief economist at HSBC in Moscow, said the price controls would have a greater impact on cities such as Moscow and St, Petersburg, where the organized retail sector -- consisting of the larger supermarket chains -- represents a greater share of the market. The government has sought to emphasize the global factors behind inflation. "Our country is becoming part of the global economy and all that happens on the global markets affects [us]," Putin said during the program, noting that the growing use of grain in biofuel production and the lowering of agricultural subsidies in the European Union had all contributed to price hikes. Grain prices have risen 60 percent year on year globally, as higher energy costs and increased demand for grain have coincided with poor harvests.
Economists say domestic factors are as much of an issue in pushing up inflation. In the run-up to elections, the government has increased its appetite for budgetary spending, throwing money at pensions and wages. Recent hikes in state salaries have gone straight into consumer markets, said Tsepliaeva, of Merrill Lynch. A more palatable measure, perhaps, would be to allow the ruble to appreciate, but the Central Bank has already indicated that it will not do this before the end of the year. A weaker ruble helps domestic industry, crucial to filling the Kremlin's tax coffers, and the government has to balance the interests of industry and those of the electorate.
Masha Lipman, a political analyst at the Carnegie Endowment for International Peace, said the government had a tendency to throw money at its problems, rather than face up to the task of carrying out difficult reforms. "The policy of the current government is demobilization. They try to keep the people reasonably content and have pushed them further and further away from decision making," Lipman said. "This means that they can't count on the public understanding."Forbes has more on the debacle, in an article headlined: "PUTIN ADMITS INFLATION IS OUT OF CONTROL."
Russian President Vladimir Putin isn't one to mince words--as evidenced most recently by a question and answer session, broadcast on Russian television on Thursday. During the broadcast he lambasted U.S. foreign policy on Iraq and Iran, accused Western companies hoping to snatch some of Russia's oil and gas wealth of indulging in "political fantasies" and promised to ramp up the country's nuclear arsenal. But lost amidst the tough talk was a rare admission from the president that the economy wasn’t quite as healthy as the government would like the electorate to believe, mere months away from presidential elections.
Putin said that inflation, which has risen by 8.5% so far this year, was a problem as the Russian economy hadn’t stayed within "the planned parameters;" he'd hoped to keep inflation below 8.0% for the year. Inflation is expected to rise even higher--up to 10.0%--according to Finance Minister Aleksei Kudrin. "This is a problem against which the government must fight," Putin, the KGB agent, turned President, said. Though of course Russia isn't to blame, he added. "Our country is becoming part of the world economy, and what happens on world markets has an effect on us," he said, laying part of the blame at the door of the European Union. He said that an end to subsidies from the EU had driven up the price of main food products by 25.0%. He said that the government was adopting measures to tackle inflation, such as reducing import duties on dairy products, and that prices would stabilize by the end of the year.
Needless to say the admission was also rapidly followed by protestations about the strength of the Russian economy and the government's responsibility for this. Putin said that GDP growth for the year has so far been 7.7%, while the country doubled its foreign investment and gold reserves and incomes rose by 13.4%. "Russia is strong enough and rich enough to defend itself," he added.
Fifty-five year old Putin, who took over as President in 2000 remains an idolized figure in Russia, despite his controversial image in the West. The question and answer session--his sixth so far--had 1.7 million questions submitted according to the Kremlin. Under the Russian constitution Putin will have to stand down before the presidential elections next March, rather than run for a third term. He has kept analysts second guessing not only about his own role--which looks increasingly like to be as prime minister--but who will replace him as head of a country which is rapidly beginning to reinstate itself as a leading global power.
Meanwhile, the MT reports, heedless of what the Russian people actually want or need, just as in Soviet times, the Kremlin barrels ahead with its crazed provocation of Cold War II, Arms Race Redux:
President Vladimir Putin announced Thursday that the defense industry was developing new nuclear weapons as part of a "grandiose but fully realistic" plan to rearm the military. "We will develop missile technology, including completely new strategic complexes," he said during a televised call-in show. "Our plans are not simply considerable, but grandiose. At the same time, they are absolutely realistic," he said. "Our armed forces will be more compact but more effective and better able to ensure the defense of Russia."
The clearly populist remarks were worded in a way that the public could easily understand. [LR: These remarks can only be populist if the people are benighted morons.] But the message also appeared to be aimed at the United States, which is determined to build a missile defense shield in Eastern Europe, despite Russia's objections. Putin also took a question on U.S. missile defense during the call-in show, vowing that the armed forces would respond if the plans went forward. "If these decisions are made without factoring in the interests of the Russian Federation, we will take steps to ensure our security," he said.
The military's General Staff is preparing the response, he said in answer to a question from an officer who participated in the testing of an intercontinental ballistic missile earlier Thursday. The Topol-M, the nation's newest intercontinental ballistic missile, was fired from the Plesetsk Cosmodrome in northern Russia and flew across the country to hit a target on the Kamchatka Peninsula. Senior Russian and U.S. officials have met repeatedly to try to resolve differences over the U.S. missile defense plans. Russia has expressed concern that the shield might be used to target its intercontinental ballistic missiles. Washington says it would only monitor and intercept missile launches from Iran and North Korea.
Putin met with the U.S. secretaries of state and defense last week to discuss the issue again, and initial reports indicated no progress. But Putin said Thursday that the two sides had edged closer to a compromise. "The latest contacts with our American colleagues show that they have indeed given some thought to the proposals we made, and they are looking for a solution to the problems and for ways to ease our concerns," he said. The Financial Times reported Thursday that the United States had offered to scale back its missile defense plans if Iran halts its nuclear program. The report, citing senior U.S. officials at a meeting of NATO governments Wednesday, said visiting U.S. officials told Putin about the offer last week in an effort to convince him to put pressure on Iran. Putin visited Teheran on Monday and Tuesday. Iran's top nuclear negotiator, Ali Larijani, said Wednesday that Putin had carried a "special message" that included the nuclear issue in talks with Iran's supreme leader, Ayatollah Ali Khamenei. But on Thursday, Iranian President Mahmoud Ahmadinejad denied that Putin had discussed any such trade-off during his visit.
During his call-in show, Putin also promised upgrades for the naval and air components of the country's strategic nuclear triad, including for Tu-95 and Tu-160 long-range bombers. He said conventional forces would be beefed up as well, with the commissioning of a much-delayed fifth-generation jet fighter in 2012 as part of a rearmament program that will be completed by 2015.