EDITORIAL: Inflation Ravages Putin’s Russia

EDITORIAL

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.