Bank Forecasts Inflation Will Level at 14%

Inflation this year is likely to stabilize at 14 percent amid tougher fiscal measures and slowing growth in real wages, Citibank said in a report Wednesday.

"Despite the tight labor market, real wage growth has slowed and inflation is eating into consumers' real disposable income, with consumption growth likely to moderate in second half of the year," said Yelena Rybakova, Citibank's chief economist in Moscow. "After high spending in the first quarter, fueled in part by the presidential elections, government spending has slowed down."

The government has appeared to be grappling with the situation by raising interest rates and allowing the ruble to appreciate against the euro-dollar basket, she said.

Despite marginal tightening in lending standards, credit to households increased by 55 percent year on year in May or 20 percent year to date, increasing inflationary pressure, the report said.

Yekaterina Malofeyeva, chief economist at Renaissance Capital, said a combination of noticeable slowdown in money expansion from the beginning of the year and stabilization in consumer goods prices would bring inflation down to about 12.5 percent.

While a strong ruble increases consumers' purchasing power, it would hurt producers who might be tempted to invest in upgrading production rather than competing with imports, Malofeyeva said.