Ministry Attributes Slower Increase in Prices to Falling Demand

MOSCOW — Falling demand is primarily responsible for the slower increases in prices, but the methods for calculating inflation still have not taken into account crisis-related changes in consumption, the Economic Development Ministry said.

The crisis gets credit for overcoming inflation, as people cut consumption because of lower incomes and businesses keep prices down because of a deficit of operating capital and loans, according to a ministry report.

In August, September and the first three weeks of October, prices have stood still, and it's not just thanks to a good harvest. The increase in food prices — excluding fruits and vegetables — in the third quarter slowed to 1 percent, compared with 1.2 percent in the second quarter and 4 percent in the first. Base inflation, which does not take into account utilities payments, gasoline, fruits and vegetables, slowed to 1.3 percent, compared with 1.6 percent in the preceding quarter.

Rising prices for services are almost exclusively from higher public-utilities rates, while the biggest increases for nonfood items are from imported goods, or where production or sales are dominated by a few major companies (tobacco, perfume and cosmetics), the report said.

Russians are reducing their goods purchases in favor of food, with preference going to markets instead of grocery stores. According to the State Statistics Service, goods accounted for 36.8 percent of Russians' expenses in the second quarter, while food was 30.7 percent, compared with 40.3 percent and 28.7 percent, respectively, a year earlier.

Consumption patterns have changed in the crisis, and the consumer price index might not correspond anymore, said Yevgeny Nadorshin, an analyst at Trust National Bank. The statistics service's 2009 consumer-goods basket is made up of 37 percent food and 37 percent nonfood goods. In recent years, the percentage for food has decreased, from 39 percent last year and 40 percent in 2007.

But the "structure of consumer purchases has worsened" because of the crisis, the acting head of the statistics service, Alexander Surinov, said recently. The shares of food, necessary goods and housing-related services (7.89 percent in this year's basket) are rising.

This year's basket exclusively reflects Russia's precrisis consumption, since it is calculated only once a year using data from the first three quarters of the current year and from the fourth quarter of the preceding year.

The third quarter's 0.6 percent rise in prices is completely a result of monetary influences, while the nonmonetary influences had a negative 0.3 percent effect, the ministry said. In the second quarter, the figures were 1.5 percent and 0.3 percent respectively.

Monetary inflation is influenced by government spending, including indexing payments to inflation, while nonmonetary inflation is determined by demand, a spokesman for the ministry said.