Sunday, November 11, 2007

Inflation Is Rising

Since 1995 the inflation rate in Russia has been steadily decreasing. Last year it was 9%, down from 100+ % in 1995. I am young, so I don’t really remember the times when the inflation was increasing. I thought in 2007 it would be somewhere about 8% or less.

But this year everything changed. It all began in September and October, when some products suddenly became more expensive, for example milk, plant oil and cheese. I think I must mention that in Russia food is a major factor when estimating the inflation, because it is still the largest expense of an average household. I guess this price hike is a part of a global trend, as this year the price of wheat skyrocketed everywhere, and dairy rose in price in Europe. Anyway, the result is the inflation rate here is already about 9%, so by the end of the year it will probably be above 10%.

For me there’s nothing scary in this news, even though I spend a lot on food. This year I finally started eating more healthily, reduced the consumption of processed food, and my class schedule allows me to take more meals at home, rather than eat out. And I recommenced bringing my lunch to school. So I hope my food bill will even be shorter than it used to be. The price of non-food goods seems to be the same. I also know that the majority of my savings earn no less than 7%, and my mutual funds’ performance is way above the inflation. What I’m interested in is if our analogue of Fed rate will be raised. It currently stands at 10%. If it gets raised, the savings account rates will probably rise too. Then I will finally set up a savings account (seriously, keeping money on one’s Visa is a little weird) and lock these attractive rates. I think of this pike as a temporary deviation, after which the downward tendency will resume.

I admit that I’m probably overly optimistic about the future. Actually, I barely remember the crisis of 1998, when Russia went bankrupt and the ruble plummeted. Since then the Russian economy has been rising. So I remember only the relatively good times, and thus I’m inclined to believe that everything will be okay. When I heard the opinion of my acquaintances and media, I understood I am an egoist. While I thought of my financial benefit, the others worried about the future of the whole nation. It was clear that everyone thought about the hyperinflation of the low nineties and the tumult of 1998. My peers, who hardly remember it, were reminded of the hard times by their parents. I heard opinions like “Russia is going bankrupt”, or “It’s a crisis like the one in 1998.” There is no ground for such statements now. It shows that people get used to relative well-being, and it’s scary for them when something unexpected happens. Especially if a history of a particular market economy is so short. We’ll see.


matt said...

In 1998, Russia was falling on hard times and the government defaulted and the currency collapsed.

In 2007, America is in denial about the hard times and the AMERICAN CONSUMER is defaulting and the largest capital market in the world is contracting rapidly.

1998 was scary for Russia. 2007 is a lot more scary for the global financial system.

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