Are you sure?

World Bank says Russia’s inflation could hit 11% in 2007

Inflation in Russia, which grew at a record rate in September and October, could reach 11% by the end of the year, the World Bank said in a report on Monday.

According to the World Bank, inflation started to accelerate in April and picked up speed in September and October, to total 9.3% for the first ten months of the year, making an annual figure of at least 11% highly likely, compared to last year’s 9%. The bank’s prognosis echoes an earlier warning from Russia’s Economic Development and Trade Ministry, which also put the 2007 figure at over 11%. The ministry attributed the high rate, well above the earlier forecast of 8%, to price hikes in food staples along with monetary pressures. According to the World Bank’s report, Russia now faces two major fiscal problems: continued inflationary pressure and the strengthening of ruble against the US dollar and other world currencies. The report said the country’s economy is now growing at maximum capacity, boosted by high global energy prices and a strong inflow of foreign capital.

Owing to a limited number of instruments to withdraw excess monetary resources from the economy and the current policy of restricting the ruble’s nominal appreciation, it is becoming increasingly difficult for Russian fiscal authorities to rein in inflation, the report said. However, the report gave a positive outlook for Russia’s economic growth, predicting a GDP rise of more than 7% in 2007 compared with 6.7% in 2006, driven by growing household consumption and an increase in business activity.

For next year, the report puts inflation at 7.5%, compared with the government’s forecast of 7%, assuming the country registers the same volume of capital inflow as in 2007. Russia’s Finance Ministry earlier said net capital inflow into Russia in 2007 would reach $80 billion, a twofold increase on last year. (