Russia: Inflation above target
Real GDP growth is set to accelerate in 2007, before moderating over the projection period as oil and metal prices stabilise at their current high levels. Domestic demand will remain strong, but the exceptional rates of investment growth observed in the first half will not be sustained. Fuelled by relaxed monetary conditions and the tightening of the labour market, inflation is set to hit double digits at the end of the year and will, in any case, exceed the central bank target of 8% by a wide margin.
Fiscal loosening is adding to inflationary pressures and the non-oil fiscal balance is set to deteriorate sharply this year. While the government has turned to artificial administrative measures to limit retail price increases, the key factor to bringing down inflation would be a return to a much tighter fiscal stance. Strengthening pro-competitive market regulations would certainly help but, in this respect, the trend towards ever greater state activism in industrial policy is a source of concern.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/russia
• All OECD Observer articles on Russia