EDITORIAL: Inflation Devastates Putin’s Russia

EDITORIAL

Inflation Devastates Putin’s Russia

By far the most important economic story where Vladimir Putin’s Russia is concerned remains inflation.  Raging out of control like wildfire, consumer price inflation is hollowing out the Russian economy even faster than the virulent corruption which Putin has likewise failed to control.

And the most important inflation story is how the government is hiding the truth about it.

The Financial Times reports:

Over the past five years, official statistics show prices rising 62 per cent, but most Russians feel much greater increases. Oksana Vozhdaeva, a journalist from Tomsk in Siberia, says her utility payments have gone up from Rb1,000 to Rb2,500-Rb3,000 a month in five years, and the cost of groceries has doubled.  “Wages are the same, but prices are increasing all the time,” says Ekaterina Barova, who works as an editor in Moscow. She says that five years ago, shopping for two people for two weeks cost Rb3,000; now it is at least Rb5,000.

In other words, Russians like Alexander Golushkin, a specialist at the Russian Academy of Sciences Institute of Literature who have an income of Rb25,000 ($900) — that’s less than $6 per hour — simply can’t afford to buy the whole range of products on offer in Russian shops.  So even though it’s horrifying all by itself, a 62% inflation rate doesn’t begin to describe the brutal pain such Russians face, because the inflation rate on the things they can actually afford is so very much higher.

It’s higher, of course, because of the basic economic laws of supply and demand. Demand for the small range of products that people with tiny salaries can afford is higher than for expensive stuff they can’t begin to pay for, and that demand drives up prices on such products even further.  What’s more, Russia’s anemic and famously corrupt manufacturing processes churn out goods so inefficiently that supply is choked off, creating even more upward pressure on prices.

Mr. Golushkin is blunt:    “It is impossible to see this situation getting better. Everyone thinks we are going downhill.”

Nearly 90% of Russian entrepreneurs refuse to keep their wealth in rubles because they don’t trust their national currency.  In fact, many Russian businessmen don’t trust cash at all; in 2009 40% thought it was safe to hold wealth in cash, but now only 5% think so.  The result is that Russian entrepreneurs are taking their money abroad at a horrifying rate, desperately afraid that to leave it in Russia means disaster.

How can this surprise anyone when Russia is ruled by a proud KGB spy with absolutely no education or credential related to managing a free market economy?  As Putin takes Russia back to the USSR, the Russian economy is suffering the same fate it met under Communism.

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