Russia: Central Bank considers price controls

As inflation rises out of control in Russia thanks to the astonishing 17% decline in the value of the ruble against the dollar, coupled with the drop in the price of oil and infusions of capital by the Russian Central Bank, the Russian economy has certainly seen better days. Russia originally aimed at the beginning of this year to bring inflation to an almost all-time low (since the Soviet era) of 5%, but with the annexation of Crimea and institution of sanctions by the West, that priority will have to wait. Russia’s industry and Trade Minister Denis Manturov said during an interview that the government will artificially stabilize prices for a basket of 40 vital goods if prices due to rampant inflation jump by a margin of more than 30%. Inflation for food prices still jumped 8% in September, despite harvest predictions of stabilization of prices for food.

However, despite all the fanfare, the lower value of the ruble might actually benefit the domestic exporters of natural resources, who are the largest suppliers of revenue to state coffers. Price inflation could therefore be seen as a tax on ordinary citizens, while simultaneously guaranteeing higher export volumes over the short run. Bloomberg suggested that the Central Bank’s behavior was not at all indicative of a crisis – as they only adjusted the bandwidth of ruble against a Euro/dollar basket by 5 kopecks and halted all activity at the end of the trading day yesterday.

With oil prices declining as well, it is unclear how much of the decline in value is due to Western sanctions, the Russian food ban, or to OPEC disputes.

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News Briefs:

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