Consumer Prices Seen Rising More Than 7% Year to Date

Consumer prices have risen by more than 7 percent since the start of the year, the government said Wednesday, in what market players said made the annual target unachievable without ruble appreciation.

The consumer price index rose 0.3 percent between May 13 and May 19, bringing the price growth to 0.8 percent from the start of May and 7.2 percent from the beginning of 2008. In May 2007, the index rose 0.6 percent.

The Economic Development Ministry revised its 2008 inflation forecast upward to up to a maximum of 10.5 percent last week.

Prime Minister Vladimir Putin has called inflation the country's main economic headache but also warned against excessive ruble appreciation, which is hurting export-oriented industries.

Strengthening the ruble is the Central Bank's main tool to combat inflation, as it makes imports cheaper, while its interest rate policies have no major influence on inflation.

The market has been betting strongly on ruble appreciation, going long on the currency, until last week when the Central Bank changed its forex intervention policies, which made the market more volatile and made it difficult for dealers to guess the regulator's policies.

"I think that to fit within the planned inflation parameters, [the government] could not cope without appreciating the ruble, but it probably won't happen earlier than in three months," said dealer Alexei Zaitsev from Unicredit.

Statistical data showed rising food prices remained the key factor behind the jump in the index in the week of May 13 to 19. Sugar, rice, wheat, sunoil, bread and vegetables became 0.4 percent to 2.4 percent more expensive. Petrol prices also jumped nearly 1 percent.

A deal to cap price rises between a group of large food producers and distributors and the government expired at the end of last month.