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31 Jan, 2008 15:43

Price freeze prolonged

For most Russians inflation has been most noticeable in rising foods prices. The government negotiated a price freeze on some staple food items with major retailers and producers. It was to expire this week, but has been extended for a further three month

The price freeze on essential food products including milk, cheese, bread and eggs was first signed by Russia's major food producers and retailers last October.

It was a move to support low income groups under most pressure from rising prices and was intended to last 3 months. With the original expiry date now passing, it is being extended.

However, the business community views the measure as ineffective in dealing with inflation. Some say Russia has to think about more natural instruments to control inflation, with one such measure being competition instead of administrative control of the prices.

Russia's biggest food retailer X5 Retail Group has managed to restrain all food prices within the company – its internal inflation ratio totaled 7.7%, compared with the general 11.9%.

Still, Lev Khasis, the chief executive officer and chairman of the management board of X5 Retail Group, believes biggest goal of such documents is psychological.

“We don't like such agreements but we suppose that in such situation probably it's a good step for providing some protection for the people who're not rich enough to buy more expensive products,” he said.

The extended agreement is due to run until May this year, with a further price increase predicted after it expires. Analysts say that the food price freeze is unlikely to seriously impact the companies participating in the agreement with competition meaning that the items are kept at lower prices anyway.

Despite the freeze economists are saying that inflationary pressure will mount and that the expiry date could see another major price jump. If this occurs those supposed to be protected by the move will be hit in the longer run regardless.