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Russia’s Drought Seen Raising Food Prices and Inflation

Russia’s drought, which is cutting grain yields, may increase food prices and push inflation above the central bank target of 6 percent this year, according to Renaissance Capital.

Inflation may reach 6.5 percent “due to the unanticipated, and temporary, food price shock,” Ivan Tchakarov, Moscow-based chief economist for Russia and the Commonwealth of Independent States at the bank, wrote in a report today.

The average wheat yield reached 2.46 metric tons a hectare (2.47 acres) as of July 26, down from 3.44 tons a hectare a year earlier, according to Agriculture Ministry data. Russia, which was the world’s third-biggest wheat exporter last season, has 16 regions affected by drought this marketing year. The country may ship 12 million tons and drop to fifth place among exporters of the grain, according to the U.S. Department of Agriculture.

Russia exported 27.2 million tons of grains in the season that ended June 30, according to ministry data. About 21.3 million tons of wheat were shipped, the USDA estimated.

Russia’s grain supply and demand balance “does not point to dramatic food price increases,” Tchakarov wrote. The country “should have some spare capacity to export” because on average it consumes an estimated 72 million tons, he wrote. The Agriculture Ministry expects the harvest to be between 80 million and 85 million tons this season.

Food prices may gain domestically, even though the country has enough grain to meet needs, Sergey Shvetsov, deputy chairman of Russia’s central bank, told reporters in Moscow today.

“It’s a global market, right?” he said. “The fact that we have lots of oil doesn’t mean that it’s any cheaper.”

“If global grain prices rise, then they’re going to rise inside Russia, too,” he said.

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