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. Last Updated: 07/27/2016

Inflation Blamed On Food Prices

Consumer prices rose by an above-expected 1.6 percent last month, the State Statistics Service said Tuesday, showing that the government had failed to tame prices ahead of State Duma elections in December.

The increase brings price growth in the first 10 months of the year to 9.3 percent, compared with 7.5 percent in the same period of 2006.

Consumer prices rose by just 0.8 percent month on month in September and 0.3 percent in October last year.

"We believe the government's administrative measures to deal with the sudden price spike have been largely cosmetic," said Rory MacFarquhar, an analyst at Goldman Sachs.

The government, seeking to calm public discontent over rising prices ahead of the December elections, has introduced a series of administrative measures, including intervention sales of government grain stocks.

Food companies and retailers this month signed a pact to freeze the prices of basic staples, such as milk, bread and eggs, until the end of January, a measure described by economists as Soviet-style state intervention.

The government blamed the inflation spike on global food price growth. Excessive budget spending this year, which resulted in rising salaries and pensions hikes, has also played a role.

The Cabinet conceded that the initial 2007 inflation target of 8 percent was out of reach but has not yet set a new official inflation forecast.

The October increase was at the upper end of the Economic Development and Trade Ministry's forecast of CPI growth from 1.2 percent to 1.6 percent month on month.

The data showed that prices for sunflower oil rose by 26.3 percent and for milk by 11.2 to 13.1 percent. But the statistics service noted a slowdown in the growth of bread prices, which rose 1 percent in October compared with 1.6 percent in September. Core inflation, an indicator cleared of seasonal and volatile factors, stood at 2.1 percent in October, the highest monthly reading in 2007, bringing core inflation in the year to date to 8.9 percent.

A recent poll of economists saw annual CPI growth at a median of 10.7 percent. Some economists suggested that the freeze on food prices would threaten the 2008 inflation target, currently 7 percent.

"A new bout of price growth after the government 'de-freezes' food prices will threaten the 2008 inflation target," said Yevgeny Nadorshin, an analyst at Trust Bank.