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:

  • Representatives from the United States, European Union and Iran will convene in Vienna next week to resume talks over Iran’s nuclear program. The talks are expected to take on an accelerated nature as the sides move quickly to attempt to reach a deal before the deadline of November 24. US Secretary of State John Kerry as well as Catherin Ashton, his European counterpart, are expected to engage personally in the talks, an indication that both the US and the EU treat the deal very seriously. Tehran has insisted that consensus on “fundamental” issues has been reached, and that ironing out the details is all that remains.
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  • Azerbaijan is holding a conference dedicated to improving Central Asian relations with Baku. The meeting is centered on matters of regional importance such as geo-economic, trade, energy and transport, and is also expected to afford nations the opportunity to engage in multilateral talks with respect to regional infrastructure projects. Representatives from Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan and Turkey have all traveled to Baku to attend the conference.
  • Kyrgyzstan has officially adopted a road map that will lead Bishkek into the Common Economic Space, a key step on the way to joining the Eurasian Economic Union. The project was conceived of by Russian and Kyrgyz officials though the Kyrgyz parliament and executive branch are responsible for supervising and ensuring adherence to the stated road map.
  • Russian energy giant Gazprom will acquire the largest underground gas storage space in Europe. The purchase of the WINGAS storage facility northern Germany will be carried out in a deal with the German chemical enterprise BASF, who in exchange will obtain access to large amounts of Western Siberia’s gas reserves. WINGAS spans approximately eight miles and can hold more than four billion cubic meters of gas.  The deal was agreed upon in 2013, though the deal looks like it will be finalized despite European sanctions on the Russian energy sector and souring relations between Brussels and Moscow.
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