Inflation if Russia in January-September 2009

At present, the growth rate of prices in Russia in formal terms (by indicators that reflect price changes either by December 2008 or in the relevant period of preceding year) remains quite high. At the same time, these indicators do not fully reflect the actual situation with inflation.

It is worth to remind that in the last six months of 2008, due to the reduction of foreign currency reserves sold by the RF CB to maintain the ruble exchange rate, monetary supply started to decrease, whereas the rate of price growth was slowing down. As of overall 2008 results, CPI reached 13.3% as compared with 11.9% in 2007. Herewith, within September - December 2008 the consumer prices have increased by 3.2% on average for the country, as compared with 4.8% over the relevant period of 2007.

However, in early 2009 RUR devaluation provided an upward pressure on prices, whereas reducing internal and external demand continued to constrain their growth. With the RUR rate stabilization the decline in economic activity has become a determining factor for inflation, and as per results of January – September, CPI in Russia amounted to 8.1% as compared with 10.7% the period of January - August 2008. Moreover, starting since August 2009, consumer prices in Russia have ceased to grow, which creates grounds for the sharp deceleration of inflation as of year results.

P.V. Trunin, PhD, Head of Laboratory of Monetary and Credit Policy