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Sunday, May 21, 2006

Inflation Continues to Destroy Russia

Using the "purchasing power parity" calculation, Russia ranks 11th in the world in gross GDP but only 83rd in the world in per capita GDP, just slightly above the world average.

RIA Novosti reports that Russian Prime Minister Mikhail Fradkov recently bragged that Russia would be among the world's top 10 economies in terms of gross domestic product by 2050 and added that Russia's gold and foreign currency reserves had hit over $230 billion, the world's fourth largest indicator. "According to some international forecasts, in terms of GDP volume Russia will settle firmly among the world's 10 leading nations by 2050," he said.

Fradkov ignores Russia's absurdly low ranking on the per capita list, as if individual Russians don't care how much they get to live on, only what Russia's ranking is among nations. He ignores the fundamental absurdity of "purchasing power parity" calculations (which assume that a gallon of contaminated milk in Russia is the same as a gallon of pure milk in France). He ignores the outrage of Russia's giant currency reserves, hoarding of money by the Kremlin that is desperately needed by the population.

And most important, he only mentions these facts so as to distract attention from Russia's horrifying consumer price inflation: He sais that the government's goal is to keep inflation to 8-9% in 2006. "This year, the government has been taking necessary steps to keep the dynamics of [price] growth at 8-9%," Mikhail Fradkov said. "Achieving a one-digit inflation figure is one of the key objectives for the government." Earlier in the year, however, experts said inflation in 2006 could exceed the initial government target of 8.5% and hit 12-13% after consumer prices grew 5.4% since the start of the year, which was because of the unusually cold winter. The mid-term program for the country's social and economic development for 2006-2008 the government adopted in December sets inflation targets of 7-8.5% in 2006, 6-7.5% in 2007 and 4-5.5% in 2008. It also seeks to achieve average annual GDP growth at about 6% in 2006-2008.

This kind of inflation would be viewed as a sign of the apocalypse in the United States, and significantly exceeds Russia's rate of GDP growth, to say nothing of its rate of wage growth.

By the way, it's interesting to note that the European Union, with a population of 457 million, has a lower gross GDP than the United States, which has only 298 million people to produce GDP.

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