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. Last Updated: 07/27/2016

Putin Tries to Quash Vodka Price Backlash

Acting President Vladimir Putin and his government scrambled Wednesday to correct what could be the biggest political mistake of his term: letting the public think his officials ordered price hikes on vodka.

A letter from the Economics Ministry raising minimum factory, wholesale and retail prices on vodka and other spirits by as much as 40 percent as of Feb. 25, published Feb. 10 in Rossiiskaya Gazeta, sent the nation into a tizzy of recrimination, hoarding and speculation on vodka prices.

"Whether or not they are celebrating a holiday, when it comes to hard liquor, Russians drink vodka. That's why any issue concerning vodka cannot be considered a joke. I want to stress that the government has taken no decisions on this issue," Reuters quoted Putin as saying in televised remarks.

A spokeswoman for the ministry clarified the issue somewhat, saying that the ministry does not have the right to regulate prices and that the new price floors were in fact recommended prices - equal to what the ministry has assessed is the minimum price for which producers can afford to put Russia's favorite hard liquor on the market legally.

They were announced to warn consumers away from cheap but potentially illegal and deadly home brews, she said.

Such vodka accounts for 50 percent of all that is sold, according to news reports.

The letter sets the minimum factory price at 56 rubles per liter, excluding the bottle, up from 40 rubles; the minimum wholesale price at 60 rubles, up from 43.50 rubles; and the minimum retail price at 62 rubles, up from 47 rubles, the minimum prices set in March 1999.

Vodka producers, wholesalers and retailers did say that it would be impossible to buy or sell legally produced vodka for less than the "presidential price," as the commercial director of one wholesaler called it.

That doesn't mean the price of vodka won't necessarily rise in the coming months.

Last fall, in a hunt for extra sources of revenue for the 2000 federal budget, the Putin government rammed a 40 percent excise hike through a reluctant parliament.

Excise on vodka and spirits accounts for more than 12 billion rubles of budget revenue this year, or 0.2 percent of gross domestic product.

In a letter of explanation sent around to journalists Wednesday, First Deputy Economics Minister Arkady Samokhvalov wrote that "the increase in the minimum prices is connected exclusively to a 40 percent excise rise as of Jan. 1."

"The Economics Ministry said they raised the excise tax on vodka, so the retail prices have to go up as producers will pass along cost to consumers," said Kim Iskyan, an analyst at Renaissance Capital.

"It was very disingenuous for Putin to say the government didn't raise the price."