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Analysis & Opinion
28.11.11 Pre-Holiday Mood Booster
By Tai Adelaja

The end-of-the-year bargain-hunting is still some way off here, but a Russian federal agency seems to be making efforts to boost optimism ahead of the holiday season. The State Statistic Services, or Rosstat, released new figures on Friday indicating that food price inflation in Russia has been consistently lower than in the European Union for the first time. But experts see the data, which shows food prices at their lowest between January and October, as the agency’s way of cheering up consumers and providing much-needed relief to a government that has seen its popularity wane ahead of crucial national elections.

The prices of basic food products inched up 1.3 percent between January and October, evidence that food inflation was moderate for a significant part of the year, Rosstat said on its Web site on Friday. Despite overall inflation hovering above seven percent, Rosstat said the modest food inflation figures compare more than favorably with the 1.8 percent growth in food prices within the European Union. Rosstat also published figures that show food price inflation in a number of European countries significantly surpassing that in Russia. In Cyprus, for instance, food prices rose by 9.7 percent, while countries like Slovenia, Malta, Bulgaria and Lithuania registered figures ranging from 4.3 percent to 4.9 percent, according to Rosstat.

This upbeat news contrasts starkly with the situation last year, when Russia’s food inflation was 6.8 percent between January and October, way ahead of the 1.8 percent for EU countries over the same period. Russian analysts were quick to point out, however, that the sharp fall in food price inflation was expected after last year’s devastating drought that sent prices of grain and most agricultural items soaring.

The Russian ruble, which strengthened in the first half of this year on the back of rising fuel prices, may also have helped to keep food prices in check, analysts said. "On top of that, household incomes grew very slowly, while the rather large capital outflows were offset by revenues from exports," said Yegor Susin, who heads the analytical department at Alpari, an online stock trading company. While the direct role of monetary policy in combating food price pressures appeared to have been limited, the minimal intervention by the Central Bank in the financial market over the same period has helped to reduce the total amount of currency in circulation, as well as keep food prices low, he said.

With international food prices easing up, many countries have lifted restrictions on food exports, contributing to the stabilization of international and domestic food markets, said Dmitry Polevoi, ING's chief economist in Russia. "Evidently, cheaper food imports helped stabilize food prices, too," Polevoi said.

Though food inflation has eased, overall inflation in Russia – including the cost of food and industrial goods and services – is still well above the European level, wrote on Saturday. The inflation rate in Russia was last reported at 7.2 percent in October of 2011, but analysis done by the paper showed that the ten-month average stood at 5.2 percent, which is still twice the average in many EU countries.

Russia has been struggling to cap inflation at seven percent – a high figure when compared to developed economies – but still the country's lowest year-end level since the Soviet Union collapsed in 1991. However, Central Bank Chairman Sergei Ignatyev said last week that inflation could still surpass that target this year. “I’m concerned about the weakening of the ruble, which began in August,” Bloomberg cited Ignatyev as saying. “That may influence inflation in December. It’s possible that it may be slightly above seven percent for the year.”

Experts also expect food price inflation to rise in the final two months before the New Year, and pointed out that figures for October show a disturbing trend. Food prices rose 0.5 percent in October compared to the previous month, which is a little ahead of the 0.3 percent EU average. Fruits prices went up 5.5 percent in October, while prices of dairy products, cheese and eggs rose 1.4 percent. The analogous figures for EU countries are 1.4 percent and 0.1 percent respectively.

The prices of meat and meat products, oils and fats moved up in Russia in October by 0.9 percent and 0.4 percent respectively. In the European Union, the prices of these food groups increased by 0.3 percent. The prices of sugar, jam, honey, chocolate and candy were up by 0.9 percent and bread and cereals by 0.6 percent. In the EU, the prices for the same products went up by 0.5 percent and 0.1 percent respectively.

The resurgence of food price inflation – in particular on protein-rich foods, like meat and fish – may be inevitable in winter, as Russia lies outside the typical Mediterranean climate, said Irina Vorobyova, an analyst at 2K Audit-Deloviye Konsultatsii/Morison International. “There is bound to be even less locally-grown produce on the shelves in the autumn and winter,” Vorobyova said. “This is normally compensated for by the more expensive imported fruits and vegetables, which are sure to impact inflation figures.”
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