MarketWatch reports:

Russian inflation continued to accelerate in November, fueled by surging food prices, bringing the year-to-date rise in consumer prices to 10.6% and underscoring the policy dilemmas facing local officials.

Consumer-price inflation rose 1.2% in November and was above market expectations. The main contributor was food-price inflation which surged 1.9% month-on-month. Year-to-date inflation surged to 10.6%. Analysts at Denmark's Danske Bank expect that consumer-prices increase to measure 12.1% at year-end, much higher than Russia's official target of 8%. "Today's inflation release is bad news for the Russian authorities, who over the last couple of months have faced quite a few inflation shocks," said Lars Rasmussen, an analyst at Denmark's Danske Bank. "Looking ahead to the first half of 2008, the inflation picture looks even bleaker."

Rasmussen zeroed in on the disappearance of numbers for the first two months of 2007 from the comparisons, as well as expected aggressive increases in certain housing and utility tariffs in 2008. Another reason he said the inflation rate will be upwardly pressured: continued strong domestic demand, in both the private and public sectors. Inflation will rise to 14% in May and June and then gradually decline to between 10% and 11% by the end of 2008, Rasmussen forecast. The Finance Ministry's inflation forecast of 7.5% to 8.5% for 2008 "is simply not credible right now, but [that] could have something to do with the presidential election in March," he said. "The truth is that the authorities right now do not have any strong measures to curb inflationary pressures," Rasmussen said. "A stronger ruble will have a limited effect on inflation, which will not be visible [within] three to six months after the strengthening."

The central bank currently manages the Russian ruble against a dual currency basket comprising both dollar and euro (which constitute 55% and 45% of the basket, respectively). Read more. "The central bank is still very busy providing liquidity to the Russian money market, and it will probably not tighten monetary conditions," Rasmussen said. Surging commodity prices have triggered an economic boom in Russia, which has extensive deposits of crude oil, natural gas, coal, precious and base metals, diamonds, and timber. In Sunday's parliamentary elections, President Vladimir Putin's United Russia party won a big majority, securing his hold on power, even as opposition parties and Western observers criticized the vote as suffering from numerous irregularities.

Putin's presidential term expires in March, when Russia is slated to hold a presidential election, and there has been rising speculation about the role that Putin will play if he does indeed step down when his term expires. See Emerging Markets Report. "Following the elections we do not expect to see major revisions to Russia's current economic and political course, which is positive for stability," said Julia Tsepliaeva, an analyst at Merrill Lynch, in a research note this week. "We expect domestic demand to remain the principal driver of economic expansion, which will be strongly supported by high oil prices," she said. "We forecast a further consumption boom on the back of growing incomes and easier access to credit." Inflation is Russia's main economic problem, Tsepliaeva said. The government's unwillingness to tighten monetary and fiscal policy increases the likelihood of ruble appreciation.