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The potato price hike is a major factor in the inflationary pain of Russia's poor.

In a farm near Moscow newly arrived Indian guest workers are planting potatoes and kale - work that is closely monitored by analysts from the central bank as they prepare to meet with board members in order to set interest rate.

In developed countries such as the United States, food makes up about 14% or less of the basket that is used to calculate the inflation rate. However, in Russia, it can be as high at 40%. The rising prices of potatoes and other staples are a big reason for the tightening monetary policy.

Even though the central bank cut its benchmark rate on June 6, it is still at the highest level since 2003. Inflationary expectations, which are a major driver of price pressures, remain high even though actual inflation has slowed down.

The potato prices have tripled in the last year, when the crop was down by 12%.

"It's crazy. The price of potatoes has always been low. "At this price, I won't buy them. I think very few people will," said Tamara a 67 year old pensioner in front of a Pyaterochka store discount in Moscow. Elvira Nabibullina, the governor of the Central Bank acknowledged the problem at her press conference following the rate reduction.

She said, "People don't buy smartphones or televisions on a daily basis." "They buy food." "If prices are rising faster, this can lead to high inflation expectations."

A study by Romir showed that Russian households spent 35% of their income on food last month, the highest in five years and a significant increase from 29% in April of 2013.

POTATO CRISIS

Pyaterochka offers Russian old-crop potatoes at 84 roubles (about $1.06) per kilogram and new-crop potatoes at 120 ($1.53), compared to an average of 43 roubles/kilo last year in retail stores. This is higher than the $0.92 per kilogram charged by Britain's largest supermarket chain Tesco.

Prices of onions, cabbages, beets carrots and other ingredients in beetroot, a popular dish throughout Eastern Europe that is often used as a gauge for food inflation, are also up.

Even President Vladimir Putin was caught off guard by the crisis. He had been praising Russia's agricultural growth and exports, despite Western sanctions, as a success, despite similar increases in butter and eggs earlier this year.

In response, the government increased imports. Egypt tripled its potato supply to Russia while Belarus, Russia’s back-up potato supplier, announced that it was out of stock.

STABILIZATION JULY

The farmers blame the poor weather for the lower crop, but they also point out that the rising cost of fuel, machinery, fertilizers, and labour as well as the high interest rates are factors.

Yaroslav Ilanov, the head of Sovkhoz Sergiyevsky Farm, said: "Last winter, it started out cold and then there was drought."

The quality of the potatoes was below average. The potatoes of good quality were sold quickly and the situation started to worsen.

He said that the high prices of this year helped compensate for some losses suffered by farmers following a bumper crop in 2023 when retail prices plummeted. The harvest this year is expected to better.

Oksana LUT, Agriculture Minister said: "We'll see a drop in prices and a stabilization beginning July."

TsMAKP, the think tank that advises the government on inflation, calculated the rate for the poor using basic food, utility and medicine costs, at 20% in April. This is ten percentage points higher than the official rate.

TsMAKP stated that "the continued rapid rise in food prices led to a substantial divergence between price index for consumption baskets of low-income population and the overall inflation rates."

In April, the average pension for the elderly was $298. Real terms, the pension fell for most of last year and then rose by 1.4% from 2025 onwards.

Sergei Aleksashenko is a former central-bank official and an opposition economist who lives in exile in America. He pointed to pensioners and workers in the public sector. ($1 = 78.5000 roubles)

(source: Reuters)