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Monday, August 07, 2006

The Steely Fingers of Inflation Close Around Russia's Throat

Russia is on pace to post double-digit inflation this year, having seen 0.7% in the month of July alone and 6.9% since the beginning of the year. Though the 6.9% figure is down from a year ago, with GDP up only 6.3% inflation has already exceeded the rate of economic growth with the year barely half over, and economic growth itself is down considerably from what it was in May of this year. The government's forecast for inflation this year had been 7-8.5%, while the Ministry of Economic Development had predicted up to 9% inflation.

What's more, inflation for the "consumer basket" of ordinary products that actually matter to people was more than double the general inflation rate, spiking 1.8% in July and hitting a terrifying 14% since the beginning of the year.

When one considers that a huge portion of Russia's "economic growth" is not genuine but rather merely reflects the accidental increase in the prices of oil, and when one considers that even with oil windfalls Russia's rate of economic growth is still vastly exceeded by the rate of inflation, one sees the stranglehold that Russia's total lack of economic fundamentals has the country in.

Yet, we continue to hear about Russia's massive oil revenues and the news about inflation continues to be ignored. If America recorded inflation that was one-third the sensational figures Russia is posting, it would be heralded as the beginning of the end for the nation's economy.

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