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. Last Updated: 07/27/2016

Despite Inflation Dip, Price Rises Predicted

After a brief midsummer dip in inflation, economists expect prices to rise faster as new cash finds its way into the system. The latest data show that consumer prices rose just 2.8 percent in the first two weeks of June, the smallest rise since Russia launched its economic reform program in January 1992. May monthly inflation of 8.1 percent was also a 25-month low. But Western economists say it is too early for Russia to say it has got inflation licked. Money supply has been rising fast as the government pumps cash into the agricultural sector while other bills remain unpaid -- a recipe for trouble ahead. "Lower inflation has been accompanied by mounting arrears, and the government admits it already owes about 8.5 trillion rubles ($4.3 billion) to firms and local authorities," one analyst said. "Basically there are two choices. They pay the arrears, spending rises and inflation goes up, or inflation stays where it is, but arrears will be horrendous by the end of the year." But Russia, which has promised to bring monthly inflation down to 7 percent by the end of the year, has a different attitude to inflation than in Western states, where inflation is often second to none on the list of economic woes. Russian officials, looking at annual inflation rates of around 900 percent in 1993 and a steep 2,600 percent in 1992, say domestic inflation is already low. Extra spending of a few trillion rubles, for example in the key military sector, would only add one or two percentage points to the monthly inflation rate, a top adviser to President Boris Yeltsin said last week.