Russia is imposing price controls through the end of the year:
Russia is introducing Soviet-style price controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration’s popularity ahead of parliamentary polls in December.
The country’s biggest food retailers and producers have reached an agreement, expected to be signed with the Russian government on Wednesday, to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.
Russia’s move is the latest sign of surging agricultural prices becoming an international political issue. Big retailers will limit their mark-up on those goods to 10 per cent. . . . .
The Russian economy ministry is also examining whether to increase a 10 per cent export tariff on wheat planned for November to 30 per cent to keep its domestic market well supplied. That prospect has pushed wheat prices up 6 per cent in Chicago in the past week, giving Moscow’s fight against rising food prices an effect beyond its borders.
Russia’s agriculture ministry said the food pricing arrangement was voluntary. But industry insiders said they had come under heavy pressure. “We were told in no uncertain terms that we have to freeze prices on certain products,” said one Russian food industry executive, who asked not to be named. “Everybody understands what the government is doing. It is part of their election campaign.”
Russian food prices rose steeply in September, with vegetable oil up 13.5 per cent, butter up 9.4 per cent and milk 7.2 per cent, thanks to global agricultural price increases. Given a big low-income population and meagre pensions, the price rises are among the few factors capable of deflating President Vladimir Putin’s 80 per cent-plus approval ratings. . . . .
Russia has fought off inflation in recent years but rising food prices mean it has already exceeded this year’s 8 per cent inflation target, with the final figure likely to top 10 per cent.
Yeah, that'll work.
Price controls don't actually lower prices. They merely outlaw certain transactions between a willing buyer and a willing seller. They therefore create artificial shortages.
We've seen how well price controls have worked in Zimbabwe. They are rapidly driving that country into economic ruin.
Anyone want to hazard a guess as to how long it will take for shortages to show up in Russia?
More from the Telegraph:
In some regions, bread is reported to have doubled in price since the beginning of the year.
The dramatic inflation has spooked the Kremlin.
With Yeltsin era shortages and the empty shelves of the Communist era still fresh in Russia's collective memory, the price of food can often make or break a president's popularity.
Until now, Mr Putin has enjoyed widespread support, basking in approval ratings of over 70 per cent.
But the issue of food price inflation — blamed on rising global costs, higher salaries and pensions and old-fashioned local greed – has begun to dominate political discourse.
While Russians blame the crisis on the government rather than on Mr Putin — who is universally credited with raising salaries — the Kremlin has decided to take no chances ahead of back-to-back parliamentary and presidential elections in December and March.
Highlighting the government's anxiety, ruling party politicians have begun to revert to the rhetoric of the Communist era. Mr Putin has railed at regional monopolies in the food market and speculators — considered in Soviet times as the country's greatest traitors -- for artificially inflating prices.
Upper house Speaker Sergei Mironov, who is often used to float controversial Kremlin-backed proposals, has even suggested re-introducing a state food monopoly.
While the state's intervention may help to stave off the Kremlin's greatest fear — that of panic buying and hoarding which could seek the crisis spiraling out of control — economists say the policy damages Russia's free market credentials.
It's ironic that this is a measure designed to shore up Putin's party. The laws of economics predict that it will backfire by creating artificial shortages and, if the controls continue, a black market.
Has Russia learned nothing about the free market?
Comments