Inflation slices into household budgets

With price freezes on essential food items lifted this month, Russian inflation remains high. Central banks throughout Europe say they have few answers, and finance ministries are now being called on to bring government spending under control.

Prize freezes on bread, milk and eggs are now lifted in Russia. Despite government controls for 6 months, the price of these products rose more sharply than average – up 11% against 8% for a standard basket of groceries.

In the first quarter of the year, food inflation in the EU was at around 3%, while Russian consumers were confronted with 6% price hikes. Analysts say Russia’s sharp food inflation is partly a result of world trends, with wheat reaching an all-time high. But loose budget spending is also blamed.

For many Russians food costs account for almost 70% of their income. The rising cost of essential items like bread – up 7% this year – is putting a strain on household budgets.

The outlook is not all gloomy though. Milk producers Unimilk and Wimm-Bill-Dann say they won't increase milk prices.

Wheat prices may also eventually stabilise, as a 7-8% growth in production and record harvests are predicted for 2008.

Central bankers meeting in Switzerland on Monday said monetary policy offered few answers on food prices. Analysts say this puts the pressure back on finance ministries to get budget spending under control.