Russian Inflation Accelerates to Fastest August Rate in Decade on Drought

Russia’s monthly inflation rate jumped to the highest level for August in 10 years as food prices climbed after the country’s worst drought in at least half a century.

Inflation accelerated to 0.6 percent compared with 0.4 percent in July, the Federal Service of State Statistics said today on its website. Consumer prices rose an annual 6.1 percent after a 5.5 percent advance in July. The median estimates in a Bloomberg survey of 12 economists was for a monthly increase of 0.7 percent and an annual 6.2 percent.

“Anomalous weather conditions affected inflationary expectations,” Bank Rossii First Deputy Chairman Alexei Ulyukayev said last week. The drought may continue to affect prices for as long as a year, he said.

Crop losses and record heat have crippled Russian agriculture, stalling the government’s drive to reduce borrowing costs by cutting inflation to as low as 3 percent over the next several years. The Economy Ministry raised its forecast for consumer-price growth this year to as much as 8 percent from as low as 6 percent because of the drought, Deputy Economy Minister Andrei Klepach said Aug. 30.

Monthly inflation in August hasn’t exceeded 0.4 percent since 2000, when it was 1 percent, as seasonally lower costs on fruit and vegetables restrained price growth.

The grain harvest in Russia, which was tied with Canada as the largest exporter after the U.S. last year, may fall 38 percent this year to 60 million tons, Klepach said. Russian millers have raised wholesale flour prices by as much as 40 percent last month, according to the Federal Anti-Monopoly Service.

September ‘Pivotal’

The central bank cut its main interest rates 14 times from April 2009 as inflation slowed to the lowest level on record. It kept the refinancing rate at a record-low 7.75 percent last month, and the possibility of raising rates this year is “very small,” Ulyukayev said Sept. 2.

The inflation rate in September is “pivotal,” Alfa Bank economists led by Natalia Orlova said in a Sept. 3 research note. The central bank “may be forced” to increase borrowing costs as early as October if weekly prices grow 0.2 percent next month, according to Alfa.

To contact the reporter on this story: Paul Abelsky in Moscow at pabelsky@bloomberg.net.

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