The Russian inflation problem

Who knew? A fascinating, lengthy analysis from economic demographer Edward Hugh at Fistful of Euros:

The argument I will present is that the sudden acceleration in inflation which we are now witnessing across a whole swathe of emerging economies in Eastern and Central Europe is not simply accidental, or coincidental. Nor is it a simple by-product of collective poor institutional quality, bad government and/or endemic corruption. Of course there is no shortage of all of these, and in varying measure, but there are larger, and in historical terms grander, “big picture” processes at work here, and what is so striking about these countries is that no matter the differences in their policy and institutional mix, under the right circumstances they all go shooting off in the same direction. So what is happening?

Well it seems to be the case that this sudden acceleration in growth and inflation is intimately related to the very specific and unusual demographic profile which most of Eastern Europe has inherited from its recent past. So one of my central arguments is that what we have here is certain a kind of mis-match. A mis-match between a basically third world. “developing-country-type” income level (for this reason they tend to be called “emerging economies”) and a very-first-world-type age structure – in the sense that many of these societies have had below replacement fertility for several decades now, and that the key 25 to 49 age group is now peaking nearly everywhere as a proportion of the total population. Before going further, perhaps I should make one thing clear. The cryptic reference to the standard Econ 101 definition of inflation that I make in the title to this post has nothing directly to do with the concentration of wealth and power which is to be found in today’s Russia. It is rather a reference to Russia’s ongoing population decline, and the way in which the Russian workforce is steadily contracting.

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