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. Last Updated: 07/27/2016

Inflation Outpaces Growth in Incomes

The State Statistics Committee said Monday that although the rate of consumer price inflation is slowing it would still reach 18 percent to 20 percent for the year, higher than the government's already revised forecast of 16 percent to 18 percent.

"Starting from the sixth or the seventh month [of the year], inflation started to slow down," the committee's first deputy chairman, Alexander Surinov, told a news conference. "There are grounds to say that the results of the year will show inflation in the range of 18 to 20 percent."

If the forecast is met, inflation will be only slightly lower than last year's 20.2 percent. It would also be in line with independent analysts' forecasts of around 20 percent.

The government originally forecasted in this year's budget a 12 percent to 14 percent inflation rate, but has raised its estimates twice. The Economic Development and Trade Ministry also raised its annual inflation forecast slightly, to 17 percent to18 percent from 16 percent to 18 percent.

The consumer price index rose 13 percent in the first half of the year compared with a 9.5 percent hike in the same period last year, according to the committee's data.

"From the point of view of the population, things are somewhat worse. Food prices are growing faster than the general consumer price index. There is insignificant growth in the population's income — in fact, lower than the rate of inflation," said Surinov. Unemployment, however, has dropped, he added.

Real incomes grew by 4.4 percent in the first half of the year. The average monthly wage rose to 3,304 rubles ($113) in June, up from 2,294 rubles a year ago. Unemployment was estimated at 9.2 percent last month.

The Economic Development and Trade Ministry, in a report on the economy's first-half performance posted on its web site (www.economy.gov.ru), said prices were also being driven by higher food prices, tariffs for communal housing services and the "natural monopolies" (gas, power, railway, etc.) and growth in money supply.

Strong oil prices have, at the same time, been a driving force in economic recovery.

The economy grew 5.5 percent in the first half of the year, Surinov said. The growth figures, lower than the 8.8 percent growth in the same period last year, have received a boost from a change in the State Statistics Committee's methodology, which has resulted in higher industrial production statistics for the past several months. GDP growth for 2000 was 8.3 percent.

The Economic Development and Trade Ministry on Monday put the GDP figure for the first half slightly lower, at 5.4 percent.

According to revised data presented Monday, industrial production in 2000 was 43.2 percent lower in 2000 than in 1989, despite growth of 11 percent in 1999 and 11.9 percent in 2000. Industrial production grew 5.3 percent in June, according to Russian Economic Trends, which is published by the Russian-European Center for Economic Policy.

"The growth is lower than last year, but the quality has much improved," said Vladimir Mau, head of the government's center for economic reform. He noted important legal reforms, growth in the machinery industry and stronger relations with the European Union as improvements over last year.

However, Mau said continued capital flight indicates that the investment climate is "not good enough." He also noted the gap between deposit and lending interest rates, the immature financial markets and the budget's dependency on commodity prices.

The Economic Development and Trade Ministry said consumer demand, earlier the main driving force for Russia's economic growth, was growing quicker than industrial output and was mainly covered by imports.

(MT, Reuters, AP)