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The Looming Inflation Crisis in Russia

Edward Hugh has a very interesting and informative blog post over at FoE entitled “Too Much Money Chasing Too Few People, Or Russia’s Current Inflation Problem” which argues that the sudden acceleration in inflation in the region is neither coincidence nor lousy institutions – it’s rather the peculiar mixture of third-world income levels and first-world demographics. He writes “As can be seen in this chart here, the value of the rouble has been rising slowly but steadily over the last couple of years, the big problem which could face the Russian authorities would be if any move they made to ease currency management procedures currently in place were to lead to a large and rapid appreciation in the rouble, and if this were then to be associated with an equally sudden inward surge of funds, funds which would in all probability generate a further surge in domestic demand, domestic demand which, given the critical state of Russia’s workforce and labour market, could not be met internally: hence my cryptic adaptation of the standard inflation definition in the title of this post, since what we would actually have would be too much money chasing too few people.