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Households feel the pinch as inflation hits 12%

Russia's economy is on the up, with growth in 2007 outstripping the estimates of experts. But it's come at a price. The cost of living is soaring, with inflation running at 12 per cent. President says the government's main goal in 2008 is getting inflatio

With the coming New Year and Christmas holidays, the price of food is rising. Inflation has hit 12 per cent, despite government plans to maintain it at eight per cent. Experts say it's the biggest economic failure of the year. They say Russia's high inflation is connected to growing prices on global markets.  They also blame a shortage of domestic products, making them even more expensive in comparison to people's wages.

RT's political commentator Peter Lavelle says ordinary people are really feeling the pinch.

“For pensioners, people in the military, this is very bad. They feel it every single day. Just an example – you often see elderly people in Moscow who are looking very carefully what they are going to buy. A lot of food is imported and it’s expensive. So it’s a political issue,” Lavelle said.

One of the main goals of the year 2008 is to lower inflation. Unfortunately we failed to stick to the planned figures. And that's not only because of the Finance Ministry. The reason is due to the overall situation of the world economy and also Russia's domestic economy.

Vladimir Putin

It's not all bad news, the same experts say overall economic growth has been higher than was initially expected. 

Economist Evgeny Gavrilenkov says Russia's economy has been doing well despite global financial turmoil.

“Growth rate has been quite high in Russia – around 7,7 per cent compared to 6, 7 per cent.  I think the main reason for this is accelerated investment activity across economy,” Gavrilenkov said.

The high rate of growth was largely because of direct foreign investments of around 41 billion dollars in 2007. 

Foreign countries invested not only in raw material industries. They increased their investments in construction and processing industries.

But Trade and Economic Development Minister Elvira Nabiullina said Russia still had a long way to go.

“Our economy is not diversified enough at the moment. In fact, this is our primary goal – to diversify the structure of our economy. We have to shift to the so-called innovative approach. Innovation is what can yield high revenues,” Nabiullina said.

Experts forecast that economic growth will continue to be high next year, and that the quality of life will go up with it.

The government has a two-pronged economic strategy. On one hand it plans to reduce inflation to the 7 to 8 per cent range. On the other, it wants to implement long-term goals of moving the economy from one based on sales of raw materials to one rooted in high-tech industries.