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Services Add More to Inflation
The inflation shock of autumn 2007 from the sharp increase in food prices would have been much more noticeable if it were not for the growth of incomes in Russia. Inflation is calculated throughout the world based on the cost of a consumer basket that approximately corresponds to that of the average citizen. When the public's income rises, the share of food in the consumer basket is decreased, but the share of services grows.
While food made up about 60 percent of the consumer basket in Russia in 2000, this year it represents 40 percent. If the growth of personal income does not slow down (it has been about 25 percent per year in recent years), that tendency will continue. In developed countries, the share of food in the consumer basket is 15-20 percent, and it is 25-30 percent in Eastern European countries. In a few years, the shares of food and services in the Russian basket may be equal. If that had happened this autumn, Russian authorities would have been pleased, since it would have lessened the influence of rising food prices on the consumer price index.
When the Russian basket comes to look more like the European, services will play a greater role in inflation indicators. Their share in Russian consumption is rising yearly. Between 2000 and 2007, the share of services rose from 13 to 25 percent, and it is likely to continue to rise. That may lead to an unexpected result. Rising regulated prices and set fees at the beginning of the year usually leads to a spike in the consumer price index, which may be even higher in 2008 than in previous years.
www.kommersant.com
All the Article in Russian as of Nov. 15, 2007
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