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Russia is warning its economy is showing signs of overheating

Russia is warning its economy is showing signs of overheating

June 4, 2021: -There are signs that Russia’s economy is overheating, with annual inflation currently at 5.9%, Anton Siluanov, the country’s finance minister, said on Thursday.

Consumer price inflation accelerated again in May, increasing from 5.5% in April. By this week, Russia’s Central Bank Governor Elvira Nabiullina told CNBC that “inflation is accelerating” and that inflation was not seen as a temporary issue as economies resumed and consumer demand raised.

“In our case, it’s different,” Nabiullina told CNBC’s Hadley Gamble earlier this week ahead of SPIEF. “We think that the inflation pressure in Russia is not transitory, not temporary. We see persistent factors, monetary factors, that’s why we began to get a rate hike back to the neutral stance.”

Investors will look to the next central bank meeting on June 11 to see what it does next; with speculation mounting, the bank could hike interest rates by nearly 50 basis points from a present level of 5%. The inflation of the central bank target is 4%.

Nabiullina said the central bank would analyze all the factors, which include the inflation forecast and the economy’s situation, but said that “we see the risk that our inflation expectations to be elevated, and they remain elevated for several months.”

On Wednesday, the central bank of Russia issued a bulletin. It noted that the economy continued to grow in the second quarter and that gross domestic product could reach its levels of pre-pandemic in mid-2021.

However, analysts at the bank noted that “economic growth is still uneven. Industries focused on export and intermediate products and the services sector have been recovering at outrunning paces during the recent months.”

It added that uncertainty concerning medium- and long-term consequences of the Covid-19 pandemic remains high.

Speaking at SPIEF on Thursday, Russian First Deputy Prime Minister Andrei Belousov said: “To be brief, the greatest challenge the world economy is going to face, I believe, is dramatic structural changes. But, so far, we cannot anticipate what they are going to look like.”

One such problem, Belousov said, was an “inflationary wave” that had unexpectedly hit the world economy, citing an “unprecedented” rise in consumer prices across the U.S. and Europe.

“I believe this is not just an indication of weakening monetary policy everyone is talking about, but it also testifies to structural changes,” he continued. “These are the challenges we will have to have a long, serious look at and take decisions about because, behind that, as has been mentioned, we see such problems as growing inequality among people.”

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