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. Last Updated: 07/27/2016

Inflation Dip Sign of 'Progress'

Russia's latest monthly inflation rate dipped slightly in November, illustrating what some economists say is a trend that could continue into the new year.

Inflation slipped to 4.5 percent in November, from 4.7 percent the previous month.

The November statistics are particularly significant because the economy traditionally heats up in the fall as the government gives cheap credits to the agricultural and industrial sectors.

"The economy is continuing to make slow, steady progress to an acceptable [inflation] level," said Charles Blitzer, chief economist at the World Bank in Moscow. "It means that this year the government has kept to a tight spending monetary policy in line with its goals."

The monthly inflation rate has been relatively stable since summer, hovering around 5 percent. The 4.5 percent mark is considerably better than the 14 percent rate of last November, and well down from January's 17.8 percent.

"High inflation is a feature of all transitional economies," said Pavel Teplukhin, an economist at the Russian-European Center for Economic Policy. But "it is important that it is coming down," he said.

In the 1996 budget, the government has forecast an inflation rate in the region of 1.9 percent monthly. However, given that similar projections made for 1995 have failed to develop, some members of parliament say a 5 percent monthly inflation rate is more likely.

But Teplukhin said the government's projected rate, which would amount to 22.8 percent annually, is a realistic goal.

"I am only saying that it is possible," said Teplukhin, adding that the government must stick to its present tight monetary policies for inflation to continue to drop.

As an indicator of the government's efforts to keep the money supply from overheating, Teplukhin pointed to the high interbank lending rate of about 10 percent monthly. With inflation at 4.5 percent, that means the real interest rate is 5.5 percent, reflecting the "hunt" for money in the market.

The government pledged a year-end monthly inflation range of 1 percent to 2 percent a month as part of a $6.5 billion loan agreement with the International Monetary Fund. But IMF officials have said they are generally encouraged by the direction of the inflationary trend and other macroeconomic factors.

Russia's ability to stick to its projections for 1996 will depend, Teplukhin said, on whether it can keep its budget deficit under control and finance its debt via anti-inflationary measures such as selling government securities.

Blitzer agreed, adding that if the government sticks to its present stabilization plan then "with a little luck" inflation will continue its slow slide downward.