Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Inflation Falls to 11%, Stability Spurs Optimism

In an indication that the Russian economy is stabilizing after several months of turmoil, monthly inflation fell to 11 percent in February, its lowest level since September, the State Statistics Committee reported Friday.


Analysts said they were optimistic the trend will continue into the second quarter of the year -- but Muscovites should not expect the prices they pay in the stores to slow down for a while yet.


February's drop from a 17.8 percent mark in January reflected a tightening of the money supply last fall rather than recent economic or political factors, analysts said.


"The government has been quite conscious of trying to push inflation down to more reasonable levels," said Hasso Molineus, manager of operations at the World Bank office in Moscow. "This is heading in the right direction. When you talk about stabilization, this is what people are talking about."


Monthly inflation changes in Russia are typically seen five months after changes in the money supply, said Pavel Teplukhin of the London School of Economics' Center for Economic Performance in Moscow.


Economists had predicted February's drop because of a slowdown in the rate of growth in the money supply to 6 percent last September, he said, while in August 12 percent growth had led to the steep price rises seen in January.


After slowing to 4.6 percent last August, inflation headed upward again in September and finished 1994 at an annual rate of 204 percent -- down from 842 percent the year before but still a far cry from the targets demanded by Western economic reformers as conditions for aid.


The International Monetary Fund is demanding a rate of 2 or 3 percent by the end of the year if it is to grant a $6.3 billion standby loan to partially cover Russia's projected budget deficit of 73 trillion rubles ($15.9 billion).The State Statistics Committee also reported that inflation nearly halved in the week to Feb. 28, to 1.5 percent from 2.9 percent the previous week. Daily inflation in February also fell to 0.37 percent from January's 0.53 percent.


Analysts predicted the slowdown in inflation would continue at least into April, possibly dipping below 10 percent, as effects from the Central Bank's tightening of credit last year continue to be felt throughout the economy. And Russia's money supply remained unchanged in January, state officials reported, a promising sign for curbing inflation into the summer.


"The trend is important for shopkeepers, for wholesalers, for importers," said Teplukhin. "It's a signal [that] is very important because it affects inflation expectations. More people will go the bank to deposit money, for longer deposits."


The downward trend could be reversed, however, by the redemption of state promissory notes issued late last year that will reach maturity over the next two months, said a Western economist who asked not to be named. Liberalization of oil product prices, under a decree announced this week by President Boris Yeltsin, will provide further upward pressure on the inflation rate, the economist added, as could any future freeing of crude oil prices.


In any case, even monthly price rises near or above double digits are pretty heady, said the World Bank's Molineus.


"You're going to have to have lot more progress before it's really going to be very noticeable in people's pocketbooks," he said.


Moscow consumers will notice differences even less. Prices in the capital are rising faster than in Russia as a whole. Figures from the city's market research center showed a monthly inflation rate of 25 percent in January -- some 7 percent higher than the national average.


Whether Russia can continue to force inflation downward, however, depends on political will, analysts said."It is possible," Teplukhin said of the single-digit target, "especially if the recent Yeltsin decree on budget spending is enforced." The president on Tuesday signed a decree reserving for himself the exclusive right to authorize extrabudgetary spending.


In recent weeks the Central Bank has pursued a policy of devaluing the ruble in line with rising inflation, and Teplukhin said the Bank was likely to allow the ruble to fall further. The government is widely expected to peg the ruble to the dollar in the late spring or early summer, which would make a sliding ruble in the interim a boon to the future competitiveness of Russian exports.


Reading the economic and political tea leaves behind the inflation drop, however, is perhaps getting a little complex. February, the cruelest month, is also the shortest. In a country where prices seem to rise every hour, Teplukhin said, the three fewer days than in January contributed to the fall.