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. Last Updated: 07/27/2016

Kudrin Puts Inflation Worries Aside

APKudrin speaking Monday at Milan City Hall. He said the government's spending plans would not fuel higher inflation.
MILAN, Italy -- The government will stick to its inflation targets despite a plan to spend hundreds of billions of dollars in the next few years, Finance Minister Alexei Kudrin said Monday, brushing off market concerns of rising inflation.

The plan to pump billions from oil and gas export revenues into modernizing the economy, unveiled by President Vladimir Putin in his state-of-the-nation address Thursday, has triggered worries of high inflation and ruble appreciation.

"The inflation forecast for this year is stable, under 8 percent, as well as for next year -- under 7 percent," Kudrin told reporters in Milan, where he attended an investment conference.

Kudrin, the government's leading fiscal hawk, said the Kremlin-blessed spending spree would be spread over a minimum of three to five years and would not disrupt economic growth or inflation plans.

"Our forecast of economic growth from 2007 to 2010 is that it will be more than 6 percent per year. That means Russia will remain among the most rapidly growing economies in the world," Kudrin said in a speech at the conference.

Russia's economy grew 7.9 percent and industrial output 8.4 percent in the first quarter.

Kudrin also said he anticipated a rise in foreign direct investment to more than $30 billion this year from $26 billion in 2006 when it was part of a total of $164 billion of investments in the economy.

The investment program -- which some have compared to Soviet-era central planning -- would help to diversify Russia's economy and make it less dependent on oil and gas export revenues.

On the domestic energy market, Kudrin said the government would raise internal gas prices by about 25 percent per year in the next two years to bring them close to international prices. The government has been studying a plan to increase taxes on extraction of natural resources, he said, declining to give details.

Kudrin's comments Monday stood in contrast to those he made immediately after Putin's speech, in which he said hitting the 2007 inflation target of 8 percent was "not guaranteed."

A poll of 15 economists on Friday warned that the inflation rate was rising for the first time this year. The economists saw median price growth at 0.6 percent in April, compared with 0.4 percent in April 2006. That would put monthly price growth ahead of year-ago levels for the first time in 2007.

"The annualized inflation rate, which had been falling since August 2006, has started rising again in April," said Alexander Morozov, chief economist at HSBC.

Analysts said the Central Bank might have to allow the ruble to appreciate against the dollar-euro currency basket.

Economists saw the ruble at a median of 25.68 to the dollar at the end of May and at 34.80 to the euro.

Economists saw M2 money supply growth at a median of 52.6 percent in year-on-year terms in April and at 35.9 percent for the whole year. The Central Bank forecasts money supply growth of 32 percent to 34 percent in 2007.

They raised their forecasts for full-year economic growth in 2007 to a median of 6.6 percent from 6.4 percent in the previous month.