Putin Predicts High Inflation

Russia's President Vladimir Putin called on his administration to assume measures aimed at tackling rising inflation.

Officially forecast at 8.5 percent this year, inflation is expected to rise beyond 10 percent. The government "must think of a plan, a system of measures," to keep inflation down, Putin said in televised remarks, addressing ministers in the Kremlin.

Finance Minister Alexei Kudrin called the proposal "very timely" and said that the government aimed to reduce inflation to between 4 percent and 4.5 percent by 2008. Putin's remarks came as the government is ramping up social spending in what some observers fear is a populist measure before 2007 parliamentary elections and the 2008 presidential poll.

Economists warn that the extra money pouring into the economy could keep inflation high, damaging the nation's economic growth rates and endangering Putin's goal of doubling the size of the economy by 2012.

The government paid out billions of dollars at the start of the year to soften the blow of botched welfare reforms. Russians took to the streets countrywide after free transport and other benefits were replaced by comparatively small cash payments for pensioners, the disabled and other groups.

Next year, spending will be increased by a further 22 percent, partly to cover much touted public sector wage hikes.

This means that Russia will notch up inflation of 12 percent this year, said Yevgeny Gavrilenkov, chief economist at Troika Dialog."The fact that this comes from the lips of the president means that the authorities recognize it is a long-term problem," Gavrilenkov said.