According to this article, iinvestment in Russia's economy hit a record annual level of 23.1% in May 2007, while Russian GDP is now growing at an annual rate of 7.7%:
“The figure is 20.8% for the first five months of the year,” German Gref said. The minister said the growth was largely due to macroeconomic stability and companies' growing revenues. But he said the other side of the coin was that the $70 billion capital influx expected this year could create inflationary pressure. Inflation was 0.6% in June 1 until 25 and is expected to reach 0.6-0.7% this month. Compared to 0.3% inflation in June 2006, the minister attributed this year's higher rates to lower imports of vegetables, which picked prices 23% in May. The minister said the government hoped to keep the indicator no higher than the 8% target.
Now this mention of inflation should begin to alert us to something which may not be what we were expecting. Russia may well be beginning to experience inflation due to its increasing labour supply problem.
Russia itself is already feeling the population pinch:
Russia's annual inflation rate rose in May to the highest in four months, as a new law on foreign workers boosted prices of fruits and vegetables.
The inflation rate jumped to 7.8 percent from 7.6 percent in April, the Moscow-based Federal Statistics Service said in an e- mailed statement today.
Russia, the world's 10th biggest economy, passed new restrictions this year for foreign employees working in the country's booming retail industry. The government limited the number of trading places given to non-Russians, which boosted food prices and created inflationary pressures, economists said.
And the observant among you will note that Russian economics minister German Gref cites precisely this problem with the supply of vegetables as the explanation for the upward creep in wages.
But the real underlying problem is the growing domestic labour shortage (the population of working age is already falling, and many Russians have been migrating west.) In the Russian case the impact of this general East European labour supply problem is pretty substantial. John Litwack, the World Bank's chief economist in Moscow, estimates that Russia is going to need about a million migrants a year.
To compensate for this(the labour force decline, EH), Russia would need an annual inflow of 1 million immigrants, which is three times as the average official annual flowover the last 15 years, and five times the official flowin recent years.
But this is not only going to be a problem for Russia, since soaking up labour at the rate of around 1 million a year is pretty quickly going to run dry the East European and Central Asian well.
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