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26 Aug, 2013 14:22

Inflation in Russia 15 times higher than in Europe

Russian inflation in the first seven months of 2013 is fifteen times higher than the European average, speeding up to 4.4% compared to 0.3% in the near deflationary EU.

Consumer prices in Russia increased by 0.8 percent in July, according to Russia’s Federal Statistics Service.
Inflation may be pushed further by the damage caused by massive flooding in the Russian Far East.  The region has lost almost half of the crop from 0.5 million hectares, Prime Minister Dmitry Medvedev is reported as saying. This may amount to a $300mln loss, according to the Ministry of Agriculture. The crop damage has been one of the reasons that Russia missed it inflation target last year as prices rose 6.6% instead of the projected 6%.

Trying to curb inflation, Russia’s Central Bank is keeping the benchmark interest rate unchanged at 8.25% for eleven consecutive months.

In Europe on the contrary, prices are continuing to fall contracting by 0.4 percent in July alone. Italy has the deepest deflation at 1.8%, followed by Greece (1.6%), Belgium, Spain and Cyprus, Luxembourg (at 1-1.3%). Malta and Turkey have seen inflation flirting at 4.5%.

Falling prices scare policymakers, as it raises the chances of another economic shake-up.  They fear the meltdown in China could send prices and wages into a downward spiral.

In the US inflation has also cooled down. Consumer prices rose 1.3 percent in the 12 months through June, roughly half the pace recorded in early 2012, Reuters reports. So far it’s well below the Fed’s 2% inflation goal for 2013.

The Federal Reserve Chairman Ben Bernanke acknowledged the risk and said in July that inflation would have to rise before the Fed could end its bond-buying program, which aims to lower interest rates so businesses can expand and take on new workers, according to Reuters.

Central bankers around the world are bracing themselves for more financial turbulence if the Federal Reserve decides to act at the much-anticipated meeting on September 17-18.