June 8 (Bloomberg) -- Economy Minister Elvira Nabiullina said Russia's $1.3 trillion economy isn't overheating, a day after her predecessor said the opposite.

German Gref yesterday said Russia's lack of infrastructure, high income growth and shortage of skilled labor indicated the economy is already in the process of overheating, a position also held by the Finance Ministry. Gref now heads state-run OAO Sberbank, Russia's biggest bank.

The potential for increasing production to meet growing demand ``doesn't allow us to say in full measure that the economy is overheated,'' Nabiullina said today in an interview with Bloomberg Television during the St. Petersburg International Economic Forum.

Russian inflation accelerated to a five-year high of 15.1 percent in May, and the government is struggling to meet its target of 10.5 for this year. Consumer-price growth has quickened every month since September and has remained above target all this year. The International Monetary Fund warned last week that Russia must slow the rate to avoid the need for a sharp tightening that could cut into economic growth rates, which have exceeded 7 percent on average since 2000.

Nabiullina said high inflation is an indication that Russia needs to ``expand production,'' not of an overheating economy. She said inflation ``could affect the pace of economic growth,'' and that the government is taking this threat seriously.

Inflationary Pressures

She repeated the government's prediction that price growth will start to slow as food prices ``stabilize'' and the country sees lower net capital inflows this year after they doubled in 2007 to $82 billion, raising inflationary pressures.

The IMF's expectations are ``more conservative'' on food prices slowing, John Lipsky, first deputy managing director of the International Monetary Fund, said in St. Petersburg.

While Nabiullina listed inflation, a shortage of qualified personnel and infrastructure limitations as the main problems for growth, she said investment, which rose by more than 20 percent last year, as well as broadening consumer demand will be a key ``locomotive'' for growth in the coming years.

``Many think that growth is based only on rising prices for energy raw materials and high prices for oil,'' she said. ``I want to say that this isn't true. Our assessments show that the share of growth of the energy sector and high prices for oil are just over a third of our growth rate.''

To contact the reporter on this story: Ellen Pinchuk in St. Petersburg via the Moscow newsroom at +7- epinchuk@bloomberg.net; Alex Nicholson in St. Petersburg via the Moscow newsroom at +7- anicholson6@bloomberg.net

Last Updated: June 8, 2008 11:41 EDT