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. Last Updated: 07/27/2016

Inflation Slows in June, Rises in First Half of Year

Inflation dipped in June month on month, but a rise in the first half of the year reaffirmed analysts' views Thursday that price rises were clouding an otherwise positive economic picture.

The State Statistics Committee said in a statement that inflation in June was 1.6 percent month on month compared with 1.8 percent in May.

The figure for the first half of 2001 was 12.7 percent, compared with 9.5 percent in the same period a year ago and 12 percent annual inflation, which was forecast in the government's 2001 budget. It later revised the forecast to between 14 percent and 16 percent.

"Inflation is the most serious single problem threatening growth prospects in the Russian economy," NIKoil brokerage said in a market note.

But the government insisted annual inflation would be lower than 2000's 20.2 percent.

"I think inflation will be lower than last year," First Deputy Central Bank Chairman Tatyana Paramonova told reporters. She attributed the price rise to higher tariffs of the so-called natural monopolies.

The government has said that inflation might go slightly beyond the revised forecast, but has played down the importance of what it sees as only a small variation.

It also points to gross domestic product growth, originally forecast at 4 percent this year, but which increasing domestic demand and investment have prompted officials to raise to around 5.5 percent.

The government also says it is laying the base for future growth with a series of key reform measures such as lower tax rates, land reform and a shake-up of the electricity and gas sectors.

Yelena Romanova, an analyst at Raiffeisenbank in Moscow, said monthly inflation was likely to slow to about 1.5 percent by September due to seasonal factors, including a fall in food prices, which is traditional in summer.

"After that, we'll see. A lot will depend on electricity, gas and transport tariffs and changes in money supply and the monetary base," said Romanova.

She said the government and Central Bank had managed to slow the growth of money supply in the last couple of months, but that even if this trend continued annual inflation would hit 20 percent or above — too high for steady economic growth. "The market expected half-year inflation of about 12 percent. We maintain our annual forecast of 21 percent to 22 percent," she said.

NIKoil forecast a more moderate increase in annual inflation to between 16 and 18 percent.