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ECONOMY UPDATE: Inflation falls to 2.4%; but manufacturing stalls in October

Alexander Mercouris




The Central Bank’s constant expectations of an inflation take-off in Russia continue to be confounded with confirmation from Rosstat – Russia’s state statistical agency – that Russia had zero inflation again last week, bringing the annual inflation rate down to 2.4%.

This comes just days after Central Bank Chair Nabiullina guessed wrongly that the annual inflation rate was 2.6%.

With November approaching its end, there will have to be a sharp rise in inflation in December if the overall inflation rate for 2017 is going to be significantly above 2.5%.  Suffice to say that the official forecast now is that it will be between 2.5% and 2.8%, whereas at the beginning of the year the expectation was that it would be 4%.

This is a mighty inflation overshoot, and it has left Nabiullina floundering for a reason both to explain it and to justify her continuing with her ‘moderately tight monetary policy’, which has left Russia with the highest real interest rates – now 5.6% – in the developed world.

Yesterday she was reduced to conjuring up the ‘Olivier salad index’ by saying that popular expectations of the future price of Russia’s beloved Olivier salad – what the rest of the world would call a ‘Russian salad’ – remain very high.

What Nabiullina was of course referring to are inflation expectations – ie. what people expect future inflation to be, as opposed to what it actually will be – which in Russia continue to be much higher than the actual inflation rate justifies.

Given the recent history of double digit and sometimes even triple digit inflation every year in Russia between 1991 and 2011 save 2009, and of the double digit inflation spike of 2015, it could not be otherwise.

Inflation expectations are something the Central Bank obviously needs to take into account in case they lead to a surge in demand for higher wages.

However of that there is no sign, and given how fast inflation is falling talking about the price of Olivier salad seems a strange way to justify keeping real interest rates as high as they currently are.

It bears remembering that the interest rate ordinary Russians pay when they take out loans is much higher than the 8.25% the Central Bank charges banks, whilst the interest ordinary Russians get paid on money they have on deposit with the banks is of course much less.

The result is a continuing squeeze on living standards, which according to Rosstat fell again in October despite the inflation fall, which is in turn leading to a fall in demand.

This almost certainly is what lies behind the fact that for the first time since February Rosstat reported manufacturing at a standstill in October. This came as a surprise after months of steady growth, but is consistent with signs of a falling off of growth in recent weeks.

A recent industrial managers’ survey shows that the single most important factor cited by industrial managers as holding back growth is a lack of demand.

I am not someone who normally takes too much account of the opinions of people like industrial managers when they talk about the overall economic situation.  In my experience such people tend to be either excessively over-optimistic or wildly over-pessimistic, and their economic expectations rarely turn out to be right.

in this case however what the industrial managers are saying is so wholly in line with the macroeconomic conditions the Central Bank has created that it is simply an exercise in denial to discount it.

A consistent feature of the Central Bank’s decision making since the December 2014 rouble crash is that it repeatedly scares itself – and gives as reasons for keeping interest rates higher than they should be – with disaster scenarios which never happen.

Thus in early 2016 it predicted that the sharp fall in oil prices at the start of the year would lead to a second inflation spike that year with inflation hitting double digits.  Instead inflation actually fell throughout the year.

At the start of this year it predicted that oil prices would fall to $40 a barrel by year end, putting renewed pressure on the rouble, and therefore causing inflation to rise.

Instead Brent crude is today trading at $63 a barrel, the rouble has risen, and instead of rising the inflation rate has fallen below the Central Bank’s target.

Now the Central Bank is scaring itself with predictions that the harvest next year will be smaller than it was this year, and that oil prices will fall again next year.

Perhaps both things will happen, and if they do the Central Bank will have to deal with them in a proper and timely way.

However I for one am completely unable to see how the Central Bank or anyone else can at this point in the current year predict with any confidence what size Russia’s harvest is going to be next year, whilst the historical record shows that anyone who thinks they can predict what oil prices will be a year ahead with any confidence is a fool.

Every so often one comes across suggestions that this year’s inflation overshoot is somehow a good thing, since it brings Russia’s inflation rate closer in line with the 2% annual inflation rate which is now typical of the developed economies.

Alexey Kudrin, Russia’s former Finance Minister, is on record as saying that Russia should aim for an annual inflation rate of 2% to 2.5%.

Bringing the annual inflation rate down to an annual rate of 2% is indeed a worthy aim, but why must it happen now?

I say this because I heard Nabiullina say in my presence at a bankers’ conference at St. Petersburg’s SPIEF conference in May 2014 that the Central Bank’s calculations were that for Russia at this stage in its development a 4% annual inflation rate is optimal, allowing possibilities for saving and long-term investment without stifling growth.

Why not stick to that, let inflation remain at 4% for a few years so that growth can pick up, and then tighten up again to bring inflation down to 2% once economic conditions have matured and become more stable?

To be clear, I am not saying and have never said that Russia should drift back into the territory of negative real interest rates (ie. interest rates below the rate of inflation) in which it found itself for most of the period following the Soviet collapse in 1991.

But Nabiullina herself has now said that a proper level for the Central Bank’s key rate in the medium term is 6% to 7%, which assuming an inflation rate of 4% speaks of real interest rates of 2% to 3%, not the more than 5% which she is inflicting on the economy now.

Nabiullina however continues to have Putin’s support, and though there are once more murmurs against her policy coming from within the government I expect her ultra hardline views to continue to prevail, at least for the time being.

What that means is that despite the recovery – which to be clear will continue despite the manufacturing setback in October – Russia will enter the election season in March with the strong likelihood that living standards will still be falling, more than a year after the recession ended.

I cannot imagine any other government or Central Bank anywhere else in the world behaving in this way on the eve of an election, and not surprisingly there are now the first signs in some opinion polls that levels of public dissatisfaction are starting to rise.

Given Russia’s overriding need for political stability that makes it all the more important that Putin runs again in March, since he remains the one person who as the same opinion polls show still has the Russian people’s overwhelming confidence.

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Foreign Banks Are Embracing Russia’s Alternative To SWIFT, Moscow Says

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative.



Via Zerohedge

On Friday, one day after Russia and China pledged to reduce their reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan (a goal toward which much progress has already been made over the past three years), Russia’s Central Bank provided the latest update on Moscow’s alternative to US-dominated international payments network SWIFT.

Moscow started working on the project back in 2014, when international sanctions over Russia’s annexation of Crimea inspired fears that the country’s largest banks would soon be cut off from SWIFT which, though it’s based in Belgium and claims to be politically neutral, is effectively controlled by the US Treasury.

Today, the Russian alternative, known as the System for Transfer of Financial Messages, has attracted a modest amount of support within the Russian business community, with 416 Russian companies having joined as of September, including the Russian Federal Treasury and large state corporations likeGazprom Neft and Rosneft.

And now, eight months after a senior Russian official advised that “our banks are ready to turn off SWIFT,” it appears the system has reached another milestone in its development: It’s ready to take on international partners in the quest to de-dollarize and end the US’s leverage over the international financial system. A Russian official advised that non-residents will begin joining the system “this year,” according to RT.

“Non-residents will start connecting to us this year. People are already turning to us,”said First Deputy Governor of the Central Bank of Russia Olga Skorobogatova. Earlier, the official said that by using the alternative payment system foreign firms would be able to do business with sanctioned Russian companies.

Turkey, China, India and others are among the countries that might be interested in a SWIFT alternative, as Russian President Vladimir Putin pointed out in a speech earlier this month, the US’s willingness to blithely sanction countries from Iran to Venezuela and beyond will eventually rebound on the US economy by undermining the dollar’s status as the world’s reserve currency.

To be sure, the Russians aren’t the only ones building a SWIFT alternative to help avoid US sanctions. Russia and China, along with the European Union are launching an interbank payments network known as the Special Purpose Vehicle to help companies pursue “legitimate business with Iran” in defiance of US sanctions.

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative. For one, much of Europe is dependent on Russian natural gas and oil.

And as Russian trade with other US rivals increases, Moscow’s payments network will look increasingly attractive,particularly if buyers of Russian crude have no other alternatives to pay for their goods.

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US leaving INF will put nuclear non-proliferation at risk & may lead to ‘complete chaos’

The US is pulling out of a nuclear missile pact with Russia. The Intermediate-Range Nuclear Forces Treaty requires both countries to eliminate their short and medium-range atomic missiles.

The Duran



Via RT

If the US ditches the Intermediate-Range Nuclear Forces Treaty (INF), it could collapse the entire nuclear non-proliferation system, and bring nuclear war even closer, Russian officials warn.

By ending the INF, Washington risks creating a domino effect which could endanger other landmark deals like the Strategic Arms Reduction Treaty (START) and collapse the existing non-proliferation mechanism as we know it, senior lawmaker Konstantin Kosachev said on Sunday.

The current iteration of the START treaty, which limits the deployment of all types of nuclear weapons, is due to expire in 2021. Kosachev, who chairs the Parliament’s Upper House Foreign Affairs Committee, warned that such an outcome pits mankind against “complete chaos in terms of nuclear weapons.”

“Now the US Western allies face a choice: either embarking on the same path, possibly leading to new war, or siding with common sense, at least for the sake of their self-preservation instinct.”

His remarks came after US President Donald Trump announced his intentions to “terminate” the INF, citing alleged violations of the deal by Russia.

Moscow has repeatedly denied undermining the treaty, pointing out that Trump has failed to produce any evidence of violations. Moreover, Russian officials insist that the deployment of US-made Mk 41 ground-based universal launching systems in Europe actually violates the agreement since the launchers are capable of firing mid-range cruise missiles.

Leonid Slutsky, who leads the Foreign Affairs Committee in parliament’s lower chamber, argued that Trump’s words are akin to placing “a huge mine under the whole disarmament process on the planet.”

The INF Treaty was signed in 1987 by then-President Ronald Reagan and Soviet leader Mikhail Gorbachev. The deal effectively bans the parties from having and developing short- and mid-range missiles of all types. According to the provisions, the US was obliged to destroy Pershing I and II launcher systems and BGM-109G Gryphon ground-launched cruise missiles. Moscow, meanwhile, pledged to remove the SS-20 and several other types of missiles from its nuclear arsenal.

Pershing missiles stationed in the US Army arsenal. © Hulton Archive / Getty Images ©

By scrapping the historic accord, Washington is trying to fulfill its “dream of a unipolar world,” a source within the Russian Foreign Ministry said.

“This decision fits into the US policy of ditching the international agreements which impose equal obligations on it and its partners, and render the ‘exceptionalism’ concept vulnerable.”

Deputy Foreign Minister Sergey Ryabkov denounced Trump’s threats as “blackmail” and said that Washington wants to dismantle the INF because it views the deal as a “problem” on its course for “total domination” in the military sphere.

The issue of nuclear arms treaties is too vital for national and global security to rush into hastily-made “emotional” decisions, the official explained. Russia is expecting to hear more on the US’ plans from Trump’s top security adviser, John Bolton, who is set to hold talks in Moscow tomorrow.

President Trump has been open about unilaterally pulling the US out of various international agreements if he deems them to be damaging to national interests. Earlier this year, Washington withdrew from the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear program. All other signatories to the landmark agreement, including Russia, China, and the EU, decided to stick to the deal, while blasting Trump for leaving.

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Kiev ‘Patriarch’ prepares to seize Moscow properties in Ukraine

Although Constantinople besought the Kiev church to stop property seizures, they were ignored and used, or perhaps, complicit.

Seraphim Hanisch



The attack on the Eastern Orthodox Church, brought about by the US State Department and its proxies in Constantinople and Ukraine, is continuing. On October 20, 2018, the illegitimate “Kyiv (Kiev) Patriarchate”, led by Filaret Denisenko who is calling himself “Patriarch Filaret”, had a synodal meeting in which it changed the commemoration title of the leader of the church to include the Kyiv Caves and Pochaev Lavras.

This is a problem because Metropolitan Onuphry of the Ukrainian Orthodox Church which is canonically accepted and acts as a very autonomous church under the Moscow Patriarchate has these places under his pastoral care.

This move takes place only one week after Patriarch Bartholomew I of Constantinople unilaterally (and illegally) lifted the excommunications, depositions (removal from priestly ranks as punishment) and anathemas against Filaret and Makary that were imposed on them by the hierarchy of the Moscow Patriarchate.

These two censures are very serious matters in the Orthodox Church. Excommunication means that the person or church so considered cannot receive Holy Communion or any of the other Mysteries (called Sacraments in the West) in a neighboring local Orthodox Church. Anathema is even more serious, for this happens when a cleric disregards his excommunication and deposition (removal from the priesthood), and acts as a priest or a bishop anyway.

Filaret Denisenko received all these censures in 1992, and Patriarch Bartholomew accepted this decision at the time, as stated in a letter he sent to Moscow shortly after the censures. However, three years later, Patriarch Bartholomew received a group of Ukrainian autocephalist bishops called the Ukrainian Orthodox Church in the USA, who had been in communion with Filaret’s group. While this move may have been motivated by the factor of Bartholomew’s almost total isolation within Istanbul, Turkey, it is nonetheless non-canonical.

This year’s moves have far exceeded previous ones, though, and now the possibility for a real clash that could cost lives is raised. With Filaret’s “church” – really an agglomeration of Ukrainian ultranationalists and Neo-Nazis in the mix, plus millions of no doubt innocent Ukrainian faithful who are deluded about the problems of their church, challenging an existing arrangement regarding Ukraine and Russia’s two most holy sites, the results are not likely to be good at all.

Here is the report about today’s developments, reprinted in part from

Meeting today in Kiev, the Synod of the schismatic “Kiev Patriarchate” (KP) has officially changed the title of its primate, “Patriarch” Philaret, to include the Kiev Caves and Pochaev Lavras under his jurisdiction.

The primate’s new official title, as given on the site of the KP, is “His Holiness and Beatitude (name), Archbishop and Metropolitan of Kiev—Mother of the cities of Rus’, and Galicia, Patriarch of All Rus’-Ukraine, Svyaschenno-Archimandrite of the Holy Dormition Kiev Caves and Pochaev Lavras.”

…Thus, the KP Synod is declaring that “Patriarch” Philaret has jurisdiction over the Kiev Caves and Pochaev Lavras, although they are canonically under the omophorion of His Beatitude Metropolitan Onuphry of Kiev and All Ukraine, the primate of the canonical Ukrainian Orthodox Church.

Philaret and his followers and nationalistic radicals have continually proclaimed that they will take the Lavras for themselves.

This claim to the ancient and venerable monasteries comes after the Holy Synod of the Ecumenical Patriarchate announced that it had removed the anathema placed upon Philaret by the Russian Orthodox Church and had restored him to his hierarchical office. Philaret was a metropolitan of the canonical Church, becoming patriarch in his schismatic organization.

Representatives of the Ecumenical Patriarchate have clarified that they consider Philaret to be the “former Metropolitan of Kiev,” but he and his organization continue to consider him an active patriarch, with jurisdiction in Ukraine.

Constantinople’s statement also appealed to all in Ukraine to “avoid appropriation of churches, monasteries, and other properties,” which the Synod of the KP ignored in today’s decision.

The KP primate’s abbreviated title will be, “His Holiness (name), Patriarch of Kiev and All Rus’-Ukraine,” and the acceptable form for relations with other Local Churches is “His Beatitude Archbishop (name), Metropolitan of Kiev and All Rus’-Ukraine.”

The Russian Orthodox Church broke eucharistic communion and all relations with the Ecumenical Patriarchate over this matter earlier this week. Of the fourteen local Orthodox Churches recognized the world over, twelve have expressed the viewpoint that Constantinople’s move was in violation of the canons of the Holy Orthodox Church. Only one local Church supported Constantinople wholeheartedly, and all jurisdictions except Constantinople have appealed for an interOrthodox Synod to address and solve the Ukrainian matter in a legitimate manner.

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