Russia Imposes Inflation-Driven Price Controls: Will Use Price Caps On "Socially Important" Commodities

Tyler Durden's picture

Russia has just announced it would proceed with price caps on a variety of foodstuffs, from buckwheat, to potatoes, assorted fruits and vegetables and all other commodities it deems "socially important" accoding to Russian newspaper gazeta.ru. And so the big margin crunch goes up several orders of magnitude, as companies, desperate to pass through surging input costs, but prohibited from raising selling prices, are forced to eliminate any and all overhead, most certainly including such trivialities as labor, in order to stay in business. More importantly, experts now predict that full year inflation in Russia will hit double digits. Just in the first 17 days of January, inflation hit 1.4%, or 9% annualized (according to gazeta... our calculation indicates a notably higher number but readers get the idea). Luckily, Russia does realize just how futile this task of price controls is: "as soon as we introduce price controls, once a deficit, the product disappears from the market, followed by an even higher rise in prices on the shadow, not covered by official supervision, market." And so a vicious circle in which high prices beget even higher prices begins. But don't worry - this could never happen in the US: see Americans only eat gold and their iPods. There is therefore massive slack in the food vertical, and, furthermore, as Steve Liesman explains so well today, a 100% rise in the price of wheat would only translate to a 10% hike in the price of bread. What happens to the other 90% (which incidentally annihilates the producer's margin but Steve didn't get to page two in that particular Inflation for Dummies book), is apparently unclear to the CNBC head economist.

From Gazeta.ru, google translated:

Government has the right to limit the price for a period not exceeding 90 days. It's allowed to do in the event that within one month increase in retail prices for these products is 30% or more in one or more regions.

Relevant amendments have been adopted into law on trafficking in the past year, but authorities have never exercised their right. Although, for example, buckwheat because of the drought has risen over the past year 3 times. " It was inappropriate to "impose price caps on buckwheat in the autumn, when the harvest had not yet been finalized, said the official. " In addition, it was expected that the situation with buckwheat will be more favorable in view of admission of the Siberian harvest. But manufacturers and trade recorded a high level of prices, since many farms lost to the drought, the fall harvest - and wanted to compensate, where possible, "- noted the deputy minister.

A marked increase in the prices of foodstuffs began in the second half of last year, and to stop it have not yet succeeded. " the risk of significant price increases this spring and the grain - and, hence, the bread and meat for the group behind him, "- admitted Klepac.

As a result, inflation is once again at risk to go beyond the framework outlined by the Government. In 2010 it was 8,8% in the original forecast of 6-7%.

Inflation forecast for 2011 - 7%. But in January it can perform almost a third of the annual plan. According to the Ministry of Economic Development, which sounded at the end of last week, the head of department Nabiullina, consumer price inflation for the first month is 2,1-2,3%. According to the Federal State Statistics Service, from 1 to 17 January, inflation reached 1.4% ( in annual terms - 9%).

The Central Bank is also concerned about the acceleration of inflation. " I feel that in the first quarter we will see an acceleration of inflation. Perhaps the situation will change in the second quarter, I hope so "- said the first deputy chairman of the Central Bank Alexey Ulyukayev, speaking at a conference at Deutsche Bank in London on 21 January.

By mid-year inflation could reach double digits on an annualized basis, said Ulyukaev.

Double-digit inflation for the year - it's real, I agree the head of department of strategic analysis FBK Igor Nikolaev. " Our forecast for 2011 - 9% "- said the head of the Center for Macroeconomic Research of BDO in Russia Elena Matrosov. " My prediction is within 11% "- said Professor of Economics, New Economic School (NES) Konstantin Styrin.

Methods of fighting inflation are well known: not to increase the money supply, to limit profitability of financial investment, slow growth in demand, transfer the practice leader goskonsaltinga Alexei Kalinin. And besides, to restrict the growth rates, enhance and stimulate product offering and is not strongly restrict imports, adds Matrosov.

But in the current selection of tools is limited.

Sterilization of money to which the government actively resorted to crisis, to fight inflation, now threatens to undermine economic growth, which is already weak.

" Sterilize the money supply, as was done in the 2000's, is problematic. First, the deficit budget for 2011 has already been approved. Secondly, the surplus could be achieved either by raising taxes or reducing spending. And one, and another would reduce aggregate demand and would have slowed the recovery growth ", - said Styrin.

Involved will be primarily monetary policy: inflation will hamper the efforts of the Central Bank on monetary and foreign exchange markets, said Kalinin.

But this method of inflation control as the introduction of maximum prices for food, experts estimate unambiguously negative: it could lead to shortages or poor quality goods.

' Not only is the practice of the Soviet Union, with its empty shelves, but some experiments governors early 1990-ies have shown: "as soon as we introduce price controls, once a deficit, the product disappears from the market, followed by an even higher rise in prices on the shadow, not covered by official supervision of the market " Reminds Kalinin. More sensitive measure would subsidize producers and sellers, adds Styrin. But the practical implementation of such decisions in the Russian context is problematic, experts say.

"Do not limit price, and nurturing a competitive environment, elimination of administrative barriers to business - that's the best solution to the problem "- reminds Matrosov. But such work should be conducted regularly, experts say, but not when prices are getting out of control.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
EscapeKey's picture

Nothing that can't be solved by printing a few hundred billion US Dollars, and fortunately, I know just the man for the job.

/Price controls?? We're so fucked.

Mr Lennon Hendrix's picture

Edit:

Nothing that can't be solved by printing a few hundred trillion US Dollars[.]

flacon's picture

The World Economic Forum suggests printing at least ONE HUNDRED THOUSAND BILLION DOLLARS to keep the world afloat. Of course they refer to this as "CREDIT" but in common peasant-language it is called "DEBT". 

 

Listen to Jim Rickards:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/1/22_Jim_Rickards:.html

 

asdasmos's picture

Yeah, it is pretty scary.

 

That was a great interview

flacon's picture

+++ That's 0.1 MILLION BILLION DOLLARS! Sounds like I'm talking gibberish with those sorts of numbers. But that is $100,000,000,000,000.00! And HOW LONG does it take for ME to earn that much? Holy crikey!

Malcolm Tucker's picture

Algeria might be the next domino to fall because of Bernanke and company. Here are videos of the riots and even the hacking group Anonymous is getting in on the action!

http://fedupmontrealer.blogspot.com/2011/01/algeria-next.html

 

ElvisDog's picture

I disagree. When it gets up to 100,000 billion, it reaches the level of absurdity. The absurd is funny rather than scary.

flacon's picture

I'm considering doubling my food supply to one decade's worth of food to feed my entire family. 

Seer's picture

Excellent interview!

I'd caution people, however, to not go overboard with the "global governance" angle.  What we're seeing now is a breakdown of governments because there is insufficient resources; creating MORE govt isn't going to solve this issue.  Again, this is my "bad systems can NOT propagate [because, well, because they are bad!]" point of reasoning.  And... BIG = FAIL  BIG & BAD = DOUBLE FAIL!

Interesting to note that the extraction rate of gold is pretty much in balance with population growth.  What happens when population growth falls off?  It's not a matter of IF, but When.  Can anyone speculate as to what would happen vis a vis gold valuation?

redline's picture

With large global systems, we have perfected fragility.  It takes a lot of energy and effort to keep it running.

Rusty Shorts's picture

O/T, but I think I just felt a tremor, New Madrid.

DoChenRollingBearing's picture

Yeah, well, we will see how well price controls work for Russia.

Last time we tried that it did not work out very well for us.

Mr Lennon Hendrix's picture

Any nation state not grasping at straws?

almost_have_a_name's picture

Somewhere in Russia:

A man asks the meat department manager "how come you don't have any fish"

The manager replies "the seafood department is where they don't have any fish"

 

Treason Season's picture

Perastroika-era story told in Poland

Man complains there is no meat. Soldier reminds man he should be grateful because now he has the freedom to complain.

When man goes home wife asks if there was meat today. Man replies that not only was there no meat but the army was out of bullets!

LowProfile's picture

I predict they will work just as well as the last XX,XXX times they tried it when they were called the USSR.

Shortages & renewed black market coming to Russia.

Despite it all Ivan is still a dumb sack of fucks.

In Fed We Trust's picture

as Steve Liesman explains so well today, a 100% rise in the price of wheat would only translate to a 10% hike in the price of bread. What happens to the other 90% (which incidentally annihilates the producer's margin but Steve didn't get to page two in that particular Inflation for Dummies book), is apparently unclear to the CNBC head economtake ist.

 

Thats easy man. That because they take all lt the wheat out of the bread and sell it else where. That's why where malnourished, man!

Ahmeexnal's picture

Melamine instead of wheat in your bread.

RockyRacoon's picture

I actually found myself despising the blatant diversionary tactic that Liesman was laying out today.  They ran that piece several times and I got angrier every time.  His explanation that the price of bread goes up only 10 cents for every 50% rise in wheat was a crock.   Not about the bread.  I could see the UN trucks unloading sacks of grain from the backs of trucks being overrun by starving people.  That was not piping hot bread on a set in the CNBC studios.  It was RAW wheat that the people had to process to make something edible.  The cost to them was 50% higher -- not 10%.  Frackin' freaks at CNBC told only 1/3 of the story.

StychoKiller's picture

Apparently, there's a lot of inflation in the LIES market(s) too!

EscapeKey's picture

It's the same old tactics of progressive admission. Deny absolutely everything that isn't in stone cold facts, and then only agree with it when it is, despite it having been obvious the entire time. Bernanke's often used this.

Same argumentation technique certain radical elements on this website use.

Hammer Down's picture

Word.  It was inevitable though.  Piss poor monetary policy ->  Inflation - > uniformed public outrage -> capitalism vilified -> govt to the rescue with price controls -> shortages -> higher prices -> outrage...  rinse, repeat

Seer's picture

All a distracting sub-plot...

Perpetual growth on a finite planet -> Collapse

Any System that promotes infinite growth on a finite planet is, in the final analysis, BAD (FAIL!).

bigelkhorn's picture

Yes you got it right! We are very Effed!

I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com  that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some uncanny accurate stuff. Well worth a look....

He had it right when he said there was a time where the US could back track and could undo the damage...but that time has now passed....and financial armageddeon is coming. I am scared!!! Everyone else awake and in tune to what is going on is scared too. 

 

Weisbrot's picture

a refernece through a post a few weeks back seemd to get it right. "cognitive dissonance"

tjunkie's picture

lets not get all hysterical here ...
fine lets get hysterical, but there are enough real reasons out there,
just not this. Ok?
Lets instead title the post accurately.
First line in the original article(http://gazeta.ru/financial/2011/01/24/3502942.shtml), and I quote:

<<????????????????? ?? ?????????, ??? ? 2011 ???? ????? ???? ???????????? ??????????? ?? ???????????? ?????????? ??? ?? ????????? ???? ????????????????? ???????>>
In english :
<<ministry of econ. development DOES NOT exclude the possibility that in 2011 it may use tools for setting price limits on some types of food ...>>

 

the translation is mine and is nearly literal.

So no price controls yet.

As much as I love this place... this is just silly.

 

PS : not sure if cyrillic text will work here

Alcoholic Native American's picture

Bend and cough bitches.

Dr. Engali's picture

It's working it's way up the food chain. It's just a matter of time before we all feel inflation's crushing grip.

RobotTrader's picture

Gold just "Flash Crashed" down to $1,300.

Some big institutions must be dumping.

http://quotes.ino.com/chart/?s=FOREX_XAUUSDO&v=w

Spalding_Smailes's picture

Martin Armstrong like waterfall looming .... Wooooooooooooooosh --- 1,320 -- Woooooooooooooosssssshhhhh

Mr Lennon Hendrix's picture

Platinum bounced off of support at the all important $1800 level.  Watch platinum to know what happens next.  I bet the next move starts with platinum moving to $1900.  Of course mnay will probably miss it because they are watching gold and silver.  Soon it will be platinum's time to shine.

topcallingtroll's picture

Platinum might just run for a while. We shall see.

flacon's picture

Let's not forget THE Flash Crash! I already forgot what gold did during those harrowing 15 minutes..... oh yeah.... I remember now.... 

 

Sneak Preview: Market Crash

http://www.youtube.com/watch?v=WmpNTtQu8E4

nmewn's picture

All my dreams are coming true.

nmewn's picture

;-)

When fiat price is of no concern to the underlying value it's pretty easy.

Good to see you again.

Oh regional Indian's picture

The lack of concern re. fiat price is going to get tested more and more NM. These guys know how roller coasters work! :-)

And Russia is familiar with how price controls work. Russians are familiar with how "Control" works. Same with China. When push comes to shove, the "Socialists" will be okay, it's the west, with it's false sense of security and lack of familiarity with control that is going to be hard to swallow.

ORI

http://aadivaahan.wordpress.com/2011/01/21/accidental-lives/

flacon's picture

"We-re Amerikah! Were Americkah! Where Amreikah! U-S-A! U-S-A! U-S-A! U-S-A!

nmewn's picture

"When push comes to shove, the "Socialists" will be okay, it's the west, with it's false sense of security and lack of familiarity with control that is going to be hard to swallow."

History says otherwise.

It's replete with examples of a yearning to be free from control...dictatorial, passive, monarchical or otherwise...the human spirit is always pushing against control, stretching the boundaries of it until it breaks, violently or peacefully, but it always breaks, and then the pieces are picked up to form the control pattern again by appointed or self-appointed leaders.

Who will be eventually corrupted by ego or greed or power or mystic self importance for they, once attaining this status, believe that they, and only they, have the answer to mans wants and desires.

But they don't.

They will shave, shower, scheme, quarrel, fight. They will put their pants on just like I will do now, and go to work. They're nothing special. 

Ying & yang? ;-)

SeeYa

snowball777's picture

I think his point is that we haven't rehearsed our "Kent State" routine as recently as some other parts of the globe.

Oh regional Indian's picture

Thanks snowball. That is what I was alluding to.

NM, I'd highly recommend Dimitry Orlov. Funny, sharp and spot on. :-)

ORI

nmewn's picture

Oh, well...never mind (Gildna Radner) ;-)

SheepDog-One's picture

So RainbowRader when did YOU sell your gold then? Thursday you were saying you were all long! 

Spalding_Smailes's picture



Mozilo reached out to borrowers as part of a "little experiment" to understand the reasoning behind making only minimum payments on so-called pay-option loans, a practice that boosts the total amount due, the 67-year-old CEO told investors Wednesday in New York.

"What we're finding out is that they're pretty smart," Mozilo said. "It's like voters: Individually they're sort of idiots, but collectively they seem to make the right decisions."

 

"CEO Makes Call on Pay-Option Loans: It's Risky", from Bloomberg News.

Having depleted their savings to pay for this, they've had to seriously cut back on spending. They went without air conditioning this past summer, despite sweltering heat and the fact that Judy was eight months pregnant.

They've also put off fixing the brakes of their second car, which the mechanic says should be replaced soon. "We don't spend money on anything that isn't critical," says Judy. "Everything goes toward the mortgages."

 

"Slow-market crisis: Stuck with two homes", in Money

When buying, Miller also likes to strike quickly and he expects the same when he's selling. "I don't haggle much over the price," he admits. "I don't beat the owner up over one of the stove elements or something when I'm trying to buy a property. I'm trying to sell a condominium right now that will make me a $200,000 gain in 11 months and this buyer is dinking me around 'cause he thinks the roof might have to be replaced in a couple years. So he's gonna lose a fair deal there in the Village. Do you think I'm gonna replace the roof? If we were in a depressed market, maybe, but [I'm thinking] 'next!'"

 

"Un-Real Estate" by Jake Nichols, on Planet Jackson Hole.