Russia says inflation to rise as economic turmoil bites

MOSCOW: Inflation in Russia could hit 17 percent this year, the deputy economy minister said Wednesday, as the ruble suffers on the back of slumping oil prices.

"Peak inflation will come in March-April when year-onyear inflation could reach 15 to 17 percent," Alexei Vedev was quoted as saying by the state-run TASS news agency. Official inflation has already topped 11 percent as the ruble has been hit hard by tumbling oil prices and Western sanctions over the conflict in Ukraine.

Russia's national currency has lost some 16 percent against the dollar since the start of the year after plummeting around 41 percent in 2014.

Russia's budget depends heavily on revenues from oil and gas, and the ruble continued to fall as the price of a barrel of Brent fell to $46.04 on Wednesday.

Vedev said that preliminary indications showed that growth in 2014 had dwindled to "somewhere between 0.5-0.6 percent." Russian Finance Minister Anton Siluanov on Wednesday said that Moscow is looking to slash spending by 10 percent across all areas except for defence in 2015 as the economic crisis bites.

In late December, Siluanov predicted that if a barrel of oil was worth $60, the Russian economy could contract by 4 percent in 2015.

At that price, which is above the $50 average price per barrel in 2015 the US investment bank Goldman Sachs now forecasts, Russia would record a budget deficit of 3 percent at current rates after balancing the budget for many years. The World Bank on Tuesday said it expects Russia's economy to contract by 2.9 percent this year due to sustained low oil prices, then post meagre 0.1 percent growth in 2016.

Economy Minister Alexei Ulyukayev admitted that there was a "pretty strong" possibility that rating agency Standard & Poor's could deal a damaging blow to Russia's borrowing prospects by downgrading the country's credit rating to "junk".