. Last Updated: 07/27/2016

Inflation Hits New Post-Reform Low

Monthly inflation in Russia continued to drop in May to another post-reform low, and economists said Thursday the rate would continue to fall despite recent election spending promises.

With one day left in the month, the State Statistics Committee said prices rose 1.6 percent, down from 2.2 percent in April, according to Interfax. Campaigning in Chelyabinsk for President Boris Yeltsin, Prime Minister Viktor Chernomyrdin said the May rate would clock in at less than 1.5 percent.

Pavel Teplukhin, chief economist at Troika-Dialog brokerage, said the low inflation was a product of the Central Bank's tight monetary policy and high treasury-bill yields that kept money out of general circulation. Money supply grew by 5 percent a month from December to February, less than during the previous three months, he said.

"A smaller amount of money is coming into circulation, which with the same amount of goods in the market makes inflation go down," Teplukhin said.

He added that the federal budget is sending money directly to regional authorities rather than through commercial banks, further slowing down circulation.

Although Yeltsin has made a raft of expensive pre-election spending pledges, Teplukhin said they would not affect inflation as long as the Central Bank maintained its tough monetary line.

"There is no link between fiscal policy and monetary policy," he said.

Russia promised the International Monetary Fund that it will lower inflation to 1 percent a month by the end of the year. At the beginning of 1995, monthly inflation was almost 18 percent.

"The Central Bank considers such a significant drop a graphic illustration of its successful policy," said bank spokesman Alexei Sitnin.

May's performance was better than the projected 2 percent, said Sergei Pavlenko, head of the government's Working Center for Economic Reform.

The trend is "exactly in accordance with the forecast made by the Central Bank and ministries of finance and economics," he said. "There are no seasonal splashes of inflation and we don't expect any."

State control over prices for "natural monopolies" -- transport, gas and electricity sectors -- accounted for the lower-than-expected rate, he said.