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Food drives Russian CPI higher, Putin angry

06 марта 2006 года

MOSCOW, March 6 (Reuters) - Russian consumer prices jumped in February as panic buying of staples such as sugar sent food prices soaring, and an angry President Vladimir Putin slapped down his government for letting prices get out of control.

The 1.7 percent monthly rise was well above economists' expectations and took the cumulative rise so far this year to 4.1 percent.

Monday's data means that hopes of getting inflation into single digits in 2006 are already fading just two months into the year.

"Clearly, the 8.5 percent government inflation figure is out of the window," said Peter Westin, chief economist at MDM Bank in Moscow.

Statistics agency Rosstat said the main culprit behind February's bigger-than-expected gain was food prices, up 3.0 percent month-on-month, and especially sugar, up 30.3 percent.

Food makes up 43 percent of Russia's CPI basket, compared with about 14 percent in the U.S. and euro zone, making Russian inflation very sensitive to any changes in food prices.

Consumers, many of whom still remember the hyperinflation of the early 1990s, started hoarding essentials after a steep rise in the cost of salt. That, say economists, suggests that popular expectations of high inflation may become entrenched.

"Sugar prices have definitely gone up over the past month, partly due to panic buying linked to the salt crisis," said Andrei Stanshevsky, at farm market research institute IKAR.

"Accelerated growth in food prices is a result of excessive budget spending," said Julia Tseplyayeva, analyst with ING in Moscow, referring to big pay rises for state employees like doctors and teachers at the start of the year.


Putin lambasted his government for letting inflation run away at the start of the year. "There is a lot of talk, but the economic result is not what we expect," he told ministers in televised remarks.

Economists said the jump in food prices was very worrying after New Year price hikes for regulated services like heating and water and could lead to the government using more non-market measures like petrol price controls to curb it.

The hike in food prices followed a period of unusually cold weather in Russia. "The harsh winter took its toll on food and vegetables, these goods require special transportation and there is a lack of this transportation in Russia," said Westin.

The figures are sure to pour fuel on the fire of a heated policy debate after the Economy Ministry's chief forecaster, Andrei Klepach, told Reuters last week the central bank must allow the rouble to rise faster to curb inflation pressures.

At current oil prices, the central bank expects to spend around $7 billion a month buying up petrodollars and printing roubles to keep the exchange rate competitive. As a result, the money supply is growing at an annual rate of nearly 40 percent.

The central bank raised its ultra-low short-term deposit rates on Friday by a half percentage point to 1-1.5 percent in a move it said would curb growth in prices and the money supply.

Analysts dismissed the rate move as ineffectual.


Russian sugar prices surged in February as New Year price gains on world markets fed through to the cost of a kilogramme of sugar in supermarkets and bazaars. Sugar makes up 1.1 percent of Russia's CPI basket compared with 10 percent for meat.

Russia is the world's largest sugar importer and a combination of a poor domestic beet harvest, tight stocks and demand for sugar-based fuels like ethanol due to soaring world oil prices has put a squeeze on the market.

Wholesale sugar prices in Krasnodar, in Russia's southern farm belt, rose to 22.20 roubles ($0.795) per kilogramme during February from 19.40 roubles at the start of the month.

But retail prices rose in some regions to over 36 roubles a kilo as buyers rushed to hoard supplies, said Stanshevsky.

Source: Reuters  |  #sugar   |  Comments: 0   Views: 93

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