EDITORIAL: Inflation Ravages Putin’s Russia


Inflation Ravages Putin’s Russia

One of the most important signals of the fundamental failure that has characterized the Putin regime has been Russia’s horrifying consumer price inflation rate.  Last week, it was announced that Russia’s overall consumer price inflation had risen to a four-month high as the increasingly weak Russian ruble forced Russians to pay ever higher prices for the vast array of basic consumer products the country cannot produce itself and therefore must import from abroad, paying in foreign currency.

Consumer prices soared 1.7% in February, 4.1% in the first two months of the year.  If that rate continues, Russia’s basic inflation rate would exceed 20% for 2009.  In fact, the annualized rate as of now is projected at “only” 14%.  Even at that, Russia is facing a rate of inflation what would instill panic in any other industrialized country — and that’s only the tip of the iceberg.  A number of factors lurking below the surface give Russian inflation the flavor of a true apocalypse.

First, the true impact of the inflation in import prices is unknown, because the Russian government is feverishly squandering its foreign currency reserves, amassed when oil was at record highs, to subsidize the ruble and minimize import price increases.  The government has also taken other draconian measures such as imposing tariffs on foreign goods to discourage their purchase in favor of inferior domestic items, leading to street protests across the country.  Russia’s FOREX reserves are not unlimited. When the run out, inflation could explode out of control.

Second, the overall consumer price inflation rate is not the one that matters to average Russians.  Earning an average wage of less than $4/hour, Russians can only afford to patronize a tiny basket of staple products, and as neo-Soviet luck would have it it’s those very products whose prices the corrupt and incompetent Putin regime is the very worst at controlling.  First and foremost among them is the price of food.  Food prices rose an an annualized rate of 16% in January when the overall rate was 13%, and electricity & heat costs rose at a 17% rate.  As things stand now, the inflation rate on the affordable basket will be well in excess of 20% by year’s end even as Russians are losing their jobs and facing pay cuts as the national economic collapse deepens.

Third, there’s Russia’s 1,000-pound gorilla:  Corruption.  No thinking person, simply put, can believe the inflation data being circulated by the Kremlin, which would not hesitate to cooks its books in order to minimize the damage to its reputation.  In other words, Russia’s actual inflation picture could be far worse than appearances make it seem.

Back in February, the IMF’s Martin Gilman reported in the Moscow Times:

Among the Group of 20 countries, which represent 80 percent of global output, Russia stands out as an anomaly in at least one way: It continues to have a problem with high inflation.  Russia’s decoupling from the rest of the world has been sudden. Just six months ago, the inflationary surge was a global preoccupation for everyone, including the United States, the European Union, China and nearly all emerging economies. At that point, what was happening in Russia could have been interpreted as part of the global price surge.

Now Russia stands alone among the G20. (Although Ukraine’s price performance is even worse, it is not a member of the G20.) The Economic Development Ministry estimates that inflation could reach 13 percent in 2009. The latest International Monetary Fund projections for 2009 show no other G20 country with expected inflation in the double digits. Even normally inflation-prone countries like Argentina, Indonesia or Turkey are expected to see price levels rising by no more than 6.8 percent, 7.3 percent and 7.9 percent, respectively. The IMF projects Russian inflation at 12.6 percent.  The irony is that Russia has decoupled at a time when many advanced countries are seriously worried about the specter of deflation.

So the government has already revised upwards the projected inflation figure for 13%, and Russia stands out as the only significant nation in the world facing double-digit consumer price inflation this year — a nightmare scenario since the worldwide economic crisis is seriously impairing incomes.

But the people of Russia don’t know that, because state-controlled Russian TV doesn’t tell them, just like it conveniently fails to mention any of the other crucial policy blunders committed by the Putin regime while it has held power.  For that reason, and because he has ruthlessly liquidated opposition political parties in the parliament, Putin continues to collect over 75% approval in public opinon polls.  In other words, it’s exactly the same situation Russia was in in the 1970s — a brutal dictator’s ignorance was destroying the country at its foundations (it eventually collapsed) and the Russian people were oblivious because of strict controls on the flow of information which they accepted like the cowardly little lemmings they are.

And so once again, a Russian state is heading for the ashcan of history.

10 responses to “EDITORIAL: Inflation Ravages Putin’s Russia

  1. I wonder how Pootler can continue to make billions of dollars in loans to other countries, just as Kyrgyzstan and Belarus?

  2. By stealing from the fund intended for pension payments.

  3. Gary Marshall

    There is a difference between the prices of certain goods going up and down through market conditions and true inflation.

    True inflation is caused by an excess of money in the markets, caused by its creation.

    Market prices rise and fall with the changes in supply and demand.

    It is not easy to separate the two. One way is to look at the interest rate on a loan. If the borrowing rate is 15%, the inflation rate is close by.

    Printing large amounts of currency, as the Russian Government has said it will do, will cause a great rise in the rate, more so than simply borrowing the money.

    Russians should buy assets that hold their value, if they can, like diamonds, gold, homes, etc.

    In a way that Poodles might understand, the Russian people are shouting…

    ‘So when you’re near me, darling can’t you hear me S.O.S…’

    Gary Marshall

  4. Diamonds as a store of value? You must be kidding. Diamonds are largely worthless, if the Diamond cartel did not keep the supply artificially low.

    Gold, on the other hand, is a good idea.

    By the way, inflation will very soon hit most Western countries with a vengeance. M2 in the US is rising at unprecedented rates. With Central Banks in the West buying bonds, we will all soon have Russian conditions.

    Hold on for the ride.

    The funny thing is that in a country like Russia, weathering a serious economic crisis is easier – relatively speaking – since most people still have garden plots, or relatives with garden plots.

    It’s gonna be a fun ride, and if we are lucky, we’ll come out looking better than Russia….

  5. Lala it’s not, like most Americans in single family dwellings with yards not like most urban Russians in apartments can’t grow vegetables, get real. Russia imports at inflationary prices 90% of its food right now. It has a very short growing season compared to us. That hurts. Most suburbanite Americans can plow their yards if they needed to and our agriculture sector can shift into more retail food supply easily.

    Economic hard times are upon us globally, but, I’d rather weather it as a free American with real options than a siloviki serf Russian grovelling for crumbs from the state. Oh, and, we never looked worse or the same as Russia at the starting line.

    Give me one good reason that the diamond cartel would at this time in history flood the market to their detriment? Duh.

  6. Gary Marshall

    There is a difference between the prices of certain goods going up and down through market conditions and true inflation.

    It’s an interesting point. In my simple (non-financial) mind, it’s devaluation of currency. The price of ruble against dollar falls, the cost of imported goods soars (and pretty much everything in Russia is imported today – from cereals to electronics), with the dire consequences to the standard of living.

    Inflation, as you note is when the cost of everything (including labor) goes up; which is reflected mainly in savings and loans. Obviously, labor costs (income for ordinary people) lags behind the prices (especially given high unemployment), and crooked employers may be playing on inflation (e.g., by delaying salaries for a few months). But I am putting this aside for a moment.

    If my understanding is correct, then inflation isn’t really as much of a problem for most Russians, as it is the exchange rate. Right?

  7. On top of inflation, growing numbers of Russians are not being paid on time at work. This from Gazeta.ru:

    “От 23% до 44% россиян столкнулись с задержкой заработной платы, таковы различные экспертные оценки, хотя официальная статистика говорит о 2%. Ничего удивительного, ведь Росстат опрашивает работодателей, которым выгодно скрывать цифры. Ведь любая просрочка – нарушение закона, за которую организации обязаны выплатить штрафы сотрудникам.”

    The official Russian statistics say that 2% of Russian employers face arrears in paying their employees, but Russian statistics are based on what the employers themselves say. Given that employers not paying their employees on time are effectively breaking the law, they do not have any interest in answering questions truthfully. Interviews and polls conducted among employees indicate that the true numbers are, much, much higher. Polls show that between 23% and 44% of Russians say they are not being paid on time or fear that they will not be paid in the coming weeks.

    Source: http://gazeta.ru/financial/2009/03/07/2954250.shtml

  8. If anything Robert (eh) Mugabe’s Zimbabwe thought us, people and governments can survive even the absurdly high inflation.

    231 million per cent inflation: Zimbabwe dumps currency

  9. Robert,

    Russia’s goal is not to “survive” but to become a great power and the Russian people don’t want to simply live off the potatoes they manage grow. This would be hard to do if you emulate Zimbabwe.


  10. What should Russia do to get out of this high inflation

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