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Russian October Inflation Rate Probably Rose Fifth Month

Russian October Inflation Rate Probably Rose for Fifth Month
Skyscrapers at the International Business Center known as "Moscow City" stand on the skyline in Moscow, Russia. The economy may grow less than 4 percent this year after expanding 4.3 percent in the previous two years, with weaker agricultural output also weighing on the expansion, according to Evgeny Gavrilenkov, chief economist at Sberbank Investment Research. Photographer: Andrey Rudakov/Bloomberg

Russia’s inflation probably accelerated for a fifth month in October as droughts drove up prices for grains, economists said.

Consumer prices rose 6.7 percent in October from a year earlier, the most in almost a year after a 6.6 percent increase in September, according to the median estimate of 17 economists in a Bloomberg survey. Prices grew 0.6 percent in the month, a second poll showed. The Federal Statistics Service in Moscow will report the data after 4 p.m. today, it said on its website.

Policy makers in September unexpectedly raised interest rates as concerns over inflation outweighed the dangers of a slowing economy. The pace of price growth has surged past the central bank’s target of 5 percent to 6 percent this year. Dry weather damaged crops this year in Russia, the third-biggest wheat exporter last season, cutting global stockpiles and helping boost food costs 7.7 percent in July-September.

“In the near term I don’t expect a slowdown in inflation,” Evgeny Nadorshin, chief economist at AFK Sistema, a Russian investment company with assets ranging from telecommunications to oil, said by phone Nov. 2. “There are no monetary-policy measures that can contain inflation in 2012.”

The ruble is the fourth-worst performer among more than 20 emerging-market currencies tracked by Bloomberg over the last six months, losing 5.2 percent against the dollar. It strengthened 0.2 percent to 31.4198 per dollar as of 2:29 p.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 31.8962 per dollar in three months.

Inflation Focus

Russia, the only major emerging economy to raise interest rates this year, is struggling to keep a lid on prices after droughts in the U.S. and locally drove up food costs. The government’s top priority is fighting inflation, even at the expense of short-term growth, President Vladimir Putin said Oct. 2 at an investment conference in Moscow.

The increase in interest rates in September harmed the country’s industry and investment without curtailing inflation, Deputy Economy Minister Andrei Klepach said Oct. 19. The government isn’t planning to raise its forecast for annual price growth to reach 7 percent in 2012, Economy Minister Andrei Belousov said Oct. 31.

Inflation slowed to a post-Soviet low of 3.6 percent in April and May after the government pushed back increases in utility tariffs by six months to July 1. Most Russians named rising prices as their biggest concern, topping corruption, poverty and drug abuse in an August poll published by the Moscow-based Levada Center.

Eroding Demand

“Domestic demand was eroded by high inflation in the third quarter,” Evgeny Gavrilenkov, chief economist at Sberbank Investment Research, said in an e-mailed note. “We expect month-on-month and year-on-year consumer inflation to remain relatively stable for the rest of the year and thus do not forecast a significant deterioration in domestic demand.”

The economy may grow less than 4 percent this year after expanding 4.3 percent in the previous two years, with weaker agricultural output also weighing on the expansion, according to Gavrilenkov.

Russian farmers reaped 72.2 million tons of all grains before drying and cleaning as of Oct. 26, down from about 95.4 million tons a year earlier. In July, world food prices rose the most in a month since 2009.

Russia’s central bank held back from raising interest rates in October, keeping the refinancing rate at 8.25 percent. Economists project policy makers will keep the rate unchanged at year-end.

“Given the economy’s deceleration and criticism from the banking system and the real sector, the central bank will likely hold off from increasing rates by the end of the year,” said Alexey Devyatov, economist at UralSib Financial Corp. “Next spring, closer to the summer, a rate decrease is possible, if food inflation slows down.”

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