OREANDA-NEWS. July 30, 2009. Rosstat issued a report on inflation (CPI) for the week ended 27 July. According to the report, consumer prices rose by 0.1% in this period, which amounts to a 0.5% rise for the month thus far. Inflation in July is estimated to reach 0.6% compared with 0.5% in the same period of 2008. These figures reveal that annual inflation also rose by 0.1%, and remains at 12%, reported the press-centre of OTKRITIE FC.

View: Price levels are beginning to be affected by increasing government expenditures. We believe that a softening of budget policy and active spending are of paramount importance for starting the economy down the road to recovery.

Certainly, this is not the time to be hawkish about the growing budget deficit. From our standpoint, inflation at its current level is a lesser evil than a shrinking economy. While such conditions have a negative impact on real incomes, low income groups such as pensioners will be protected via pension increases that are expected to reach 45% on average by the end of 2010. However, we are concerned that acceleration in inflation may limit CBR's willingness to continue with cuts in interest rates.