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Russian PPI Doubles

James Boston
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www.finances.com
Russian PPI Doubles

It is not entirely unexpected to see the increase in the Russian Produce Price Index (PPI) just reported. The month on month PPI number has doubled from 0.8% growth to 1.6%. Year on year PPI has risen 8.9% to 9.0%. The interesting factor is that these figures related to the month of July and market consensus had anticipated these numbers to drop significantly.

This data was collected prior to any sanctions being imposed by the European Union (EU). Although Russia doesn’t rely too heavily on European countries for it’s raw materials it does have a heavy reliance on the EU for the industrial machinery used to process these raw materials.

The hoped for alleviation of the rising costs of production by Russian manufacturers has not only failed to materialise pre sanctions but is only likely to further increase, potentially dramatically so, once the supply of vital manufacturing equipment and components further tightens.

Increasing the squeeze on the hard pressed Russian industrial sector is the fact that even though the prices of scarce equipment is on the rise there has been a sharp drop off in available funds for investment. Financial sanctions against Russia are already in force and the month of July was the first month in recent history where no US or European funds were lent to or invested in Russian companies.

These sanctions are designed to encourage Russian business interests to put pressure on President Putin’s regime to wind up their efforts in eastern Ukraine. The response from the authorities has so far been to remain hard lined, economically however this is not a long term strategy. Significant efforts are on going by the Russian authorities to strengthen trade links to the east, particularly with China. This will be a race against time for the Russian economy and will be particularly hampered by the western pressure on China to tread carefully.

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