ID :
Sat, 06/21/2008 - 09:41
Auther :

Russian foodstuff prices outstrip EU's by factor of four

MOSCOW, June 21 (By Itar-Tass World Service writer Lyudmila
Alexandrova) - Russian foodstuff prices are growing several times faster than foodstuff prices in the European Union, and experts say this testifies to the impossibility of explaining the food-basket inflation exclusively by the external factors and general global tendencies, something that the authorities tend to do.

The prices of foods in Russia have outstripped those in the EU by a
factor of four. From December 2007 through May 2008, foodstuffs in the EU
became 3.1% more expensive, while Russia showed an increase of 11.6%,
according to the data published by the Federal Service for Statistics.

Compared with Europe, Russia shows the biggest growth rates of prices
for the two most highly demand products, bread and meat. Over the past two
and a half months the prices of pork and beef swelled by 15% to 20%.

The prices of butter have been growing five times faster in Russia
than in the West, and vegetable prices, ten times faster.

The consumer price index in all commodity categories went up 7.7% in
this country from January through May. Out of all the EU member states, Latvia was the only one to show a bigger increase standing at 8.5%.

Government officials in Moscow prefer to interpret the growing prices
as the aftermath of a global food crisis that continues gaining pace since
its outbreak in 2007, but experts say the surge of prices in Russia is far
more equivocal than the officialdom seeks to show it off.

"The difference between the inflation rates in Russia and the EU stems
from the continuing impact of internal factors in Russia, where the market
is monopolized, competitiveness is low, and the budgetary spending keeps
going up," the Moscow-based Nezavissimaya Gazeta quotes Maria Karatanova,
an analyst at the Economic Expert Group research center.

"The Russian economy doesn't have sufficient competition levels, and
that's why the prices of imported and domestic foodstuffs are growing more
intensively here," the same paper quotes analyst Leonid Slipchenko of the
Uralsib Group.

"The explanations that food prices in Russia climb because of imported
inflation are groundless," Igor Nikolayev, the director of the strategic
analysis department at the FBK company told the RBC Daily.

He blamed the situation on the growing fees charged by natural
monopolies, the freezing of prices and inflexible regulations for customs
tariffs. For instance, prohibitive export duties for wheat grain
/effective through to July 1, 2008/ were introduced last winter. But no
simultaneous measures were taken as regard wheat flour, and their absence
boosted exports of the latter. The prices of wheat went down inside the
country as a result but bread continues getting more and more expensive.

"Growing tariffs for natural gas, electricity and railway
transportation also have their due in the hikes of bread prices," the
Gazeta newspaper quotes Sergei Shakhovets, the director for development at
the grain portal as saying. "And recall that another hike of
railway tariffs - by 11% -- awaits us in less than a week's time."

Quite naturally, these costs are included in the prices of
commodities. Western companies that have run into a similar problem show
much greater efficiency than their Russian counterparts - their production
processes are less labor-intensive and require less energy.

According to the Federal Service for Statistics, inflation in Russia
reached 8.1% in the period of January 1 through June 1 and remains
steadily high against the background of a slowdown in the increase of
money supply, as well as the net outflow of foreign capital that totaled
2,4 billion U.S. dollars of as of the beginning of this month.

Economists claim confidently that the inflation will reach 14% by the
yearend - on the condition that the government will venture to take tough
measures for restricting the growth of money supply.

Russia did not heed in the IMF's appeal to cut down the budgetary
spending as a means of curbing the inflation. The State Duma, the lower
house of parliament, passed a bill of amendments to the 2008 budget law
that beefed up spending by another 228 billion rubles /USD 1=RUB 24.0/.

The amendments were introduced by Finance Minister Alexei Kudrin, who
received the IMF recommendation to refrain from an upward revision of the
spending and, consequently, from the fuelling of inflation literally a day
before he did his presentation in the Duma.

The IMF surmised that the Russian economy was overheated and the
inflation arose from the government's faulty financial policies. It
recommended to refrain to fulfilling the 2008 budget to the end and to
stay away from an increase of expenditures in the future.

The day before the endorsement of amendments in the Duma, Kudrin made
a report to Prime Minister Vladimir Putin, the Internet publication
Vzglyad says. He spoke about who impedes the fulfillment of the budget
provisions and why the budgetary allocations are not assimilated on time.

That is why Kudrin answered the IMF mission that all the budgetary
liabilities are strictly fixed and what has been scheduled must be
"In other words, this is a bet between the Vladimir Putin cabinet and
the IMF," writes Vzglyad. "The die is cast for 228 billion rubles - and
for the percentage of the inflation rate. If it does not exceed the
government-planned 10.5% substantially, the cabinet will win, and if it
climbs above 14%, Moscow will have to admit that the IMF was right."

The IMF offers traditional arguments, suggesting that expenditure
means a huge influx of monies to the economy and an overheated economy may
fail to digest it properly. If so, this will result in an increase of
prices and an impending reduction of the Gross Domestic Product, as
investing in a country where the inflation rushes to surpass 20% to 25%
annual does not bring any profits.

Minister Kudrin's assuredness is based on well-specified knowledge,
though. While the amendments to the budget envision an increase of
spending by 287.8 rubles, the actual increase will stand at 120.4 billion
rubles, while the rest of the sum will be financed through economizing and
through a partial carryover of finances from the 2008 budget to the
budgets for 2009 and 2010 and vice versa.

It is also suggested that social benefits, which do not fuel the
inflation in any way, will make up the greater part of the newly planned expenditures.