links on rbcnews.com
	News Online Shares&Bills Stock Market Currencies&Credits Exchanges Online Ratings Company&Products Our Partners Russian

The official inflation forecast will most likely be revised. Yesterday, for the first time, Deputy Economy Minister Andrei Klepach acknowledged that the drought that has hit Russia's European part may send inflation spiraling upwards as early as this fall.

“We have to assess the scale of the drought. If we produce 80-85m tonnes of grain, which is a fairly optimistic estimate, there will be no significant effect on inflation. If we reap a poorer harvest, however, it will have an impact, though not immediately in August, starting from September and into October and November,” Andrei Klepach announced.

Executive Director of SovEcon – a center specializing in market research and consulting – Andrei Sizov described the forecast of 85m tonnes of grain as overly optimistic. “In our estimation, even a harvest of 75m tonnes is questionable. We are constantly in touch with the regions, and there has not been any improvement so far,” Sizov explained.

Considering this, market participants see a rise in prices as inevitable. “The drought may add an extra 1.5-2 percentage points to the official inflation forecast of 6-7 percent,” President of the Russian Grain Union Arkady Zlochevsky said.

“Clearly, in Russia, where foodstuffs account for over 40 percent of the consumer basket, inflation may very well jump by 1-2 percentage points to 8.1 percent this year. Certain signs of an upward trend in prices for foodstuffs and certain non-food items, such as air conditioners and other cooling devices, may be seen as early as July and August,” Yaroslav Lisovolik, chief economist at Deutsche Bank, noted.

According to Lisovolik, inflation will peak in September-October and then ease back somewhat. Meanwhile, grain quotes are climbing on the wholesale market. “In the past week, the price rose by RUB 200-400 (approx. USD 6.54 – 13.08) per tonne, which is roughly 7-10 percent of the total cost. On the whole, prices are notably higher this year than last year, when they were heading down,” Sizov pointed out.

Yet, authorities still have a chance of keeping prices at the record low level. “So far, we see no reason to change our inflation forecasts, and we expect it to finish at 5.5 percent this year. The fact that the deflation process could slow down is a different story,” Anton Struchenevsky, a leading economist at Troika Dialog, stated. In other words, though he does not expect bread prices to rise, he admits that a rise in fodder prices could push meat prices higher.

There is also a chance that a rise in fodder prices will work to the contrary, however, resulting in a large-scale cattle slaughter. “That is a possibility, but only for the short-term,” Sizov warned, adding that meat prices would most likely rise after that.

Analytical department of RIA RosBusinessConsulting