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. Last Updated: 07/27/2016

Prices Up but State's Inflation Target Safe

Consumer prices grew faster in April than in the same month last year, official data showed on Monday, but economists said a government goal to lower the overall inflation rate this year should still be met.

The consumer price index rose 0.6 percent month on month compared with 0.4 percent in April 2006, coming out in line with analysts' expectations and at the lower end of a 0.6 percent to 0.8 percent forecast by Economic Development and Trade Minister German Gref.

The government has set a target to reduce the full-year inflation rate to 8 percent in 2007 from 9 percent in 2006, and inflation rates showed a steady downward trend at the start of the year. April was the first month in 2007 when the inflation reading came out higher than the same period in 2006.

"I think we are still on target of 8 percent," said Peter Westin, chief economist at MDM Bank.

Consumer prices were up 4 percent from January to April, compared with 5.4 percent in the same period of 2006.

Food prices grew 0.8 percent, while nonfood prices grew by 0.4 percent.

Westin said the Central Bank's policy of keeping the ruble stable against a basket of 55 cents and 44 euro cents was partly to blame for food price growth.

"As the ruble appreciates against the dollar, it weakens against the euro, leading to imports from Europe becoming more expensive. This is something that feeds through to food prices," Westin said.

The main risk of the country missing its annual inflation target of 8 percent comes from accelerating private capital inflows as companies raise money abroad to finance their expansion.

Core inflation, an indicator cleared of seasonal and volatile factors and therefore more susceptible to monetary influences, was up 0.5 percent as M2 money supply continues to grow at rates over 50 percent.

"There are some concerns over the rapid growth in capital inflow in the first quarter as a whole and in April alone that has already led to very rapid growth in reserves and money supply," said Anton Stroutchenevsky, analyst at Troika Dialog.

The ruble exchange rate is the only effective weapon Russia has against inflation. Interest rate policies are little use in a country flooded with petrodollars that the economy cannot digest.

The Central Bank allows the ruble to appreciate against the basket in small moves to curb inflation by making imports cheaper.

Inflation is therefore closely watched by investors seeking clues on the Central Bank's next currency move.

With two elections ahead, the government has announced plans to spend 650 billion rubles ($25.27 billion) on infrastructure, housing and science.

"The danger [to Russia meeting its inflation target] is the hike in spending which can happen in an election year, but so far we have seen a very prudent policy," Westin said.

The country will vote to elect a new State Duma in December and will then elect a successor to President Vladimir Putin, who is due to step down in 2008.