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4 May, 2009 06:43

Price rises may come back to haunt

Economists warn price rises during a downturn will hurt companies in the longer term. Ford raised the cost of its vehicles by up to a quarter from May, but the company says it has no choice.

As demand slows, carmakers in the West offer record discounts. In the UK it's now cheaper to buy a new car than a used one, claim auto experts Parker's. But Russia's heading the other way, with Nigel Brackenbury saying cost pressures mean there is no alternative.

“[As for] Anybody with a large imported content in the product, the devaluation has been substantial in terms of the impact on our margins, so we've had to take successive price rises through this year, and what you saw in May is our latest instalment of that. It's something we've seen in our competitors too, and it's something that will continue through the year.”

Imported goods are worst hit by the recent double whammy of rouble devaluation and higher customs duties, leading many to push up prices. Studies show Russian shops are now twice as expensive as in the EU. But Natalya Zagvozdina, Head of Russian research at Renaissance Capital warns price rises will come back to haunt firms.

“Producers are trying to compensate for rising costs and falling sales by increasing prices. Ultimately it will further hurt their sales.”

But corporate moans sound more like crocodile tears. Per square metre, top retailers in Russia sell more than 20,000 dollars worth of goods, double the volumes in Western Europe. With two times the footfall, there seems little justification for twice the price.