Medvedev Says Inflation Is Price of Being World Power

Russian President-elect Dmitry Medvedev said inflation, which accelerated at the fastest pace in 31 months in February, is a result of the country's success at developing an open global economy.

``Inflation remains a rather serious issue for Russia,'' Medvedev said in a transcript of an interview with the Financial Times posted on his Web site today. ``This is the price that we are essentially paying for our presence in the club of world economic powers.''

Consumer-price growth in Russia, the world's biggest energy producer, has overshot the government's target in every one of President Vladimir Putin's eight years in power except 2003. The Economy Minister raised it inflation forecast by 1 percentage point to 9.5 percent after the inflation rate rose to 12.7 percent, almost 10 times faster than inflation for the 15 nations that use the euro.

Medvedev, 42, is a first deputy prime minister and the chairman of gas-export monopoly OAO Gazprom. He won more than 70 percent of the vote in the March 2 election and will be sworn in as head of state on May 7.

Last year's record net capital inflow -- a broad measure of the money entering the country -- stoked inflation by swelling money supply, government officials have said. Inflow doubled last year to $82.3 billion.

Currency Changes

``We didn't expect this kind of capital inflow when we liberalized the currency regime,'' Finance Minister Alexei Kudrin said at the Economy Ministry today, referring to changes made to regulations on foreign currency and capital movements in 2006.

Under Putin, who plans to remain in government as prime minister, average incomes have risen sixfold while foreign currency reserves have swelled to more than $500 billion. The surge in oil revenue and disposable income has fueled a consumer boom that has made it difficult to contain inflation, which accelerated 11.9 percent last year.

``Naturally there are other factors contributing to our inflation,'' said Medvedev. ``In particular, we don't yet have a full-scale internal market for food products. We are forced to buy many food products from overseas, and given the way prices are going up on world food markets, this is also having an impact.''

`Islands of Stability'

Even so, Medvedev called Russia's markets ``islands of stability in the ocean of financial turmoil'' caused by the collapse of the U.S. subprime mortgage market, which has sent up borrowing costs worldwide. Interest from foreign investors in the stock market and financial markets was ``as high as ever,'' he said.

Medvedev said that Russia's economy was ``insured'' against fluctuations on the commodities and financial markets by its vast currency reserves, the world's third largest.

``Our financial and reserves, our gold and currency reserves, are higher than ever before and reflect the state of the Russian economy,'' Medvedev said.

However he warned that the country wasn't ``closed off'' completely from the turbulence. ``Russia has an open economy today and we have to think about this,'' he said.