October Inflation Leap Is One-Off, Say Economists

Monthly inflation leapt to 15.1 percent in October, its highest level by far since January, but economists said Friday that the jump was mainly a one-time-only result of the ruble's crash last month and predicted a lower rate in November.


"You have to be careful discussing the October figures, because you had the plunge in the ruble," said Brigitte Granville, a senior research fellow with the Royal Institute of International Affairs who studies monetary issues in Moscow. "I think we're going to see a lower rate this month."


October's inflation is way above August's low of 4 percent, and could imperil Russia's chances of bringing inflation down to below 7 percent a month by the end of this year as agreed with the International Monetary Fund in April.


It also raises a question mark over the government's ability to implement its 1995 budget -- yet to be passed by parliament -- that envisages a monthly inflation rate of less than 2 percent by the end of next year.


Economists pointed to low recent weekly inflation figures, however, as proof that the government's stated targets are still not out of reach. Interfax, quoting figures supplied by the State Statistics Committee, reported a fall in weekly inflation to 2 percent in the last week of October, down from a weekly level of 3-5 percent earlier in the month.


Jochen Wermuth, head of the Russian-European Expert Group under the Finance Ministry's Macroeconomic Policy Department, said inflation data for the first week of November indicates a likely monthly rate of around 8 percent.


He added that data on money-supply growth, energy prices and wages suggest that October inflation would have been around 8-9 percent if the ruble crisis had not occurred -- only slightly higher than September's 7.7 percent.


Dmitry Rozhkov, an economist with the independent Center for Economic Performance, said that inflation had been expected to rise in October because of increased monetary growth in the second quarter that had taken several months to filter through into higher retail prices.


"If the ruble crisis hadn't happened, then inflation would certainly have been higher than in September, but probably not as high as 15 percent," he said.


Rozhkov added that monetary growth had been relatively stable throughout the summer. This gives the government a realistic chance of meeting its 7-percent target, he said.


"The worst months for the budget are over," Rozhkov said. "If the Central Bank manages to keep the money supply low, then 7 percent starts to become a realistic goal."


But while the monetary repercussions of Black Tuesday may be drawing to an end, political repercussions persist. On Friday, Economics Minister Alexander Shokhin resigned after the appointment of Vladimir Panskov to the post of Finance Minister.


Shokhin and acting Finance Minister Andrei Vavilov had been criticized by a government commission investigating the causes of the ruble's crash, which has already claimed several victims, including Central Bank chief Viktor Gerashchenko.


One of Gerashchenko's former deputies, Alexander Khandruyev, said Thursday that the bank had proposed a number of mechanisms to the commission to stabilize the ruble's rate, including what he called a "flexible fixed rate," Interfax reported.


This would average the Moscow Interbank Currency Exchange, private interbank and retail exchange rates, and allow the value of the ruble to move only within a range of 2-5 percent of this figure. The rate would be set weekly.


Khandruyev also predicted a decline in gross domestic product of 15 percent next year, if a tight budget policy is pursued and monthly inflation brought down to 1.5 percent early in the year.


This is considerably higher than previous forecasts of a decline of 6-8 percent, and would not represent much of a recovery from this year, during which production is expected to decline 16-17 percent.