The global food crisis and turmoil in the energy-rich Middle East are likely to dash the Russian government's hopes of holding inflation to an all-time low this year.

The government expects consumer price inflation to fall to 6-7% this year from 8.8% last year, but prices have already risen by 3.2% in the first two months of 2011.

Analysts say the disastrous storms and droughts which hit the world's leading agricultural producer countries, including Australia and the United States, and last summer's drought in Russia would make the largest contribution to price rises.

"Global food prices continue growing. This means that food prices will resume growing in Russia in a month or a few months," Alfa-bank analyst Natalya Orlova told RIA Novosti.

She expects prices to rise 8% overall in 2011 after reaching 5.25%-5.5% in the first half of the year but slowing down in the second half as the new harvest comes to the market.

The worst heat wave in Russia's recorded history wiped out around a quarter of the nation's crops, forcing the government to ban grain exports and making prices skyrocket for cereals, especially the national favorite buckwheat.

The food crisis has been exacerbated by political unrest in the Middle East and north Africa, a major supplier region of oil and gas. Oil prices have already hit two and a half year highs, with the market wary of interruptions to supplies.

Orlova said that the Middle East unrest created high inflationary expectations in Russia, the world's top energy producer, which remains heavily reliant on oil exports. An increase in oil revenue inflow will force the central bank to print rubles to buy petrodollars from the market, increasing money supply in the economy.

"Key factors which will boost inflation ... are of monetary nature, including high oil prices," said Renaissance Capital analyst Anton Nikitin, who expects the CPI to hit 8-8.2% this year.

Uralsib analyst Alexei Devyatov says the fruits of the central bank's efforts to prevent the ruble from sharp rises after the 2009 international financial crisis were now being seen. He says that money supply, which directly affects inflation, has risen 50% since spring 2009.

Devyatov, who expects prices to rise 9.5% this year, also said that the central bank was switching its policy from ruble rate management to inflation control.

At the end of February, the central bank raised all its key rates by 0.25 percentage points in a clear signal that it is ready to sacrifice economic growth, by making credit more expensive but taming inflation.

"Inflation will rise in the next several months, driven by the previous policy. We hope that it will considerably slow down by autumn," Devyatov says.

Nikitin says the lack of progress on structural reforms, in particular tariff rises for state regulated monopolies, hinder the anti-inflation policy.

"If we look at other developing countries, Russia is the only state whose inflation is close to double-digit figures. In other countries, such as China, or Brazil, 5% inflation is considered really high," he says. "One of the reasons why inflation in Russia is close to 10% is structural problems."

Lack of structural reform is responsible for about 2-2.5% of total inflation in Russia, he says.

RIA Novosti