Russia’s government is considering freezing prices for some “socially important” goods as inflation nears a four-year high, the government newspaper Rossiyskaya Gazeta reported on Thursday.
Russia had been aiming to bring inflation to a post-Soviet low of 5% this year, but the annexation of Ukraine’s region of Crimea ruined the plan. The annexation and the subsequent sanctions imposed by Western countries have put pressure on the ruble, making imports more expensive. The Kremlin’s decision to ban food imports from states that have sanctioned Russia has further spurred already burgeoning inflation.
Russia’s Industry and Trade Minister Denis Manturov said in an interview with Rossiyskaya Gazeta that the government may artificially stabilize prices for some 40 vital goods if a price jumps by more than 30%. He did not say what these goods were or when the price freeze may happen.
Inflation was expected to subside in August and September thanks to a solid harvest. But food inflation failed to slow in the past two months after Moscow banned imports of fruit, vegetables, dairy products, fish, meat and poultry from the European Union, the U.S., Australia, Canada and Norway. The ban was imposed in early August and is set to last for one year.
After the imports ban, annual consumer inflation rose to 8% in September from 7.6% in August. Prices for meat and poultry jumped 16.8% on the year in September, while prices for fish and seafood rose 14.1%. Growth in food prices has continued, with prices of cucumbers increasing by 7.6% in just one week to Oct. 6.
The government has previously said that it may regulate prices, which has resulted in condemnation from economists who have warned that any attempt to artificially lower prices will only lead to market shortages.
An MNI Indicators poll showed Thursday that consumers’ dissatisfaction with the current level of prices was at the highest on record after the food imports ban. The poll also showed that Russian consumers, who were the main driver of the country’s economic growth, are increasingly concerned about employment.
“The continued low level of our consumer indicator and the weakness seen in our business survey as well, suggest we’ll be lucky to see positive GDP growth in 2014,” Philip Uglow, chief cconomist of MNI Indicators, said in a monthly report.
Russia’s economy is forecast to grow by no more than 0.5% this year compared to 1.2% last year and an average annual growth of 7% seen between 2000 and 2008. Despite the waning growth, the central bank is widely expected to continue waging war with rising prices by tightening its monetary policy. The International Monetary Fund recommended the central bank keep its interest rates in positive territory, which means above the annual inflation reading, in order to anchor inflationary expectations.
An interest rate increase is possible at the central bank’s regular meeting on Oct. 31 as inflation has already reached the level of the key rate.
Source: WSJ