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Putin Predicts Inflation Near 8%

Prime Minister Vladimir Putin on Sunday predicted that inflation this year would be just over 8 percent, a post-Soviet low, as the strengthening ruble helps cut prices and the faltering economy slows demand.

Double-digit inflation was a constant headache during Putin’s presidency, angering politically active pensioners who saw rising consumer prices hammering their fixed incomes. Prices rose 13.3 percent last year, and inflation was running at an annual rate of 15 percent before the economy began contracting.

The prime minister’s estimate is dramatically lower than the most optimistic forecasts from his government and the Central Bank. But analysts said the goal was reachable, as prices have not risen for the past nine weeks and year-to-date inflation is at 8.1 percent.

“We are working on lowering inflation to 9 percent to 8 percent,” Putin said at the third Russian-Finnish Forum in St. Petersburg. “This year it will be just over 8 percent,” he said. “I hope we will reach 6 and 5 percent later. It is a possibility in the next three to four years.”

The country’s lowest full-year inflation rate was in 2006, when prices increased 9 percent. The Economic Development Ministry’s official 2009 forecast is for 11 percent to 12 percent ?­inflation, although it now also expects a figure closer to 10 percent.

Russia’s consumer price index has risen 2.6 percent since April, Troika Dialog wrote in a note Thursday. “Inflation has obviously decreased, as the year-to-date tally from the same period a year ago was 11.2 percent,” the bank said.

VTB Capital said Thursday that the most recent inflation data “increased the downside risks” to its 10.6 percent annual forecast for 2009. The Central Bank has room for at least another rate cut of 50 basis points, the state bank said.

The Central Bank estimates that a 1 percent appreciation in the ruble reduces inflation by 0.3 percentage points. The ruble has gained more than 7 percent against its trading basket since September (Story, Page 9).

The lowest figure previously floated was from Central Bank First Deputy Chairman Alexei Ulyukayev, who said Friday that 2009 inflation would not be higher than 10 percent. As a result, the regulator will be able to continue lowering its benchmark refinancing rate, he said.

Ulyukayev’s outlook for 2010 was even more optimistic. “If the inflation rate next year isn’t more than 9 percent, then the refinancing rate may go down to at least that same level,” he said. There is also a chance for inflation to be “much lower” than the conservative prediction of 9 percent to 10 percent next year.

The Central Bank has been reducing the refinancing rate since March by half and quarter percentage points, bringing it down from 13 percent to the current 10 percent. The government hopes the rate cuts will boost lending and spur on the real economy, although cutting the rate too fast could create inflationary pressure by increasing the money supply.

The M2 money supply — a broad measure that includes cash, deposits and money market funds — will grow by 4 percent or 5 percent by the end of this year, compared with last year, Ulyukayev told a banking conference Friday. The measure shrank by 1.4 percent from January to August.

Putin’s prognosis is optimistic but not impossible, said Natalya Orlova, chief economist at Alfa Bank, as government policies to keep the budget deficit in check have helped attain low inflation.

“If the government financed 8 or 9 percent of the deficit, inflation would be much higher,” she said. “[But] low inflation also reflects low business activity. As soon as companies see demand on the rise, they may start raising prices.”

Gokhran, the state depository for gems and precious metals, is planning to sell at least 200 tons of gold this year to help plug a federal deficit, Reuters reported Friday (Story, Page 9).

Putin’s comments will be welcomed by the public, which historically has ranked inflation as one of Russia’s biggest problems.

Muscovites asked to name their five biggest concerns earlier this month placed high consumer prices and increasing utilities bills as their first and second choices, with 49 percent of respondents and 44 percent, respectively. The poll of 1,000 people, released Oct. 6, had a margin of error of 5.2 percentage points.

And while broader macroeconomic trends have played a large role in capping inflation, the government has also deployed a broad range of tactics to bring down prices this year. Most visibly, the Federal Anti-Monopoly Service has been investigating pricing in industries ranging from gasoline and milk to software and hotels.

State Duma deputies are currently hammering out a final version of a hotly contested bill on trade, which will seek to limit the expansion of major chains to increase competition and could include a mechanism for the government to introduce temporary price caps on socially important goods.

In June, Putin personally attempted to tackle inflation during a visit to a Perekryostok supermarket, where he chastised owners for high markups on meat.

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