He said it was inappropriate to reduce inflation to 3 percent by 2008. In his opinion, inflation should be 5-6 percent at a time of structural reforms, and it would be appropriate to reduce it to 3 percent after 2008. If inflation is reduced to 3 percent before 2008, it could freeze structural reforms in different areas of the economy, the Economy Minister believes. Vladimir Putin also spoke about it in his annual address to the Federation Council on Wednesday. He stressed that inflation should be reduced gradually, by 3 percent a year.

Inflation is expected to be 10 percent this year, and 8 percent – in 2005. The Economy Ministry hopes that inflation would be within projected limits in 2004-2005. In this respect, Mr. Gref stressed it was necessary to pay more attention to prices and tariffs for natural monopoly services, which have a significant impact on inflation.

In the estimation of the Economy Ministry, a rise in natural monopoly tariffs would lead to a 2.5 percent rise in consumer inflation in 2005. At the same time, he noted, rising monopoly tariffs would account for 29 percent of inflation in 2005, and for 31 percent – in 2004.

According to the Economy Ministry, manufacturing costs will rise 0.75 percent in 2005 due to a rise in electricity prices. The aluminum industry, where expenses are expected to rise 3 percent, will be hit the most. As a result of rising gas prices, manufacturing costs will increase 0.9 percent.

Gas prices on the Russian market will rise to $51-$52 per 1,000 cubic meters by 2010, according to Mr. Gref. In his opinion, this level corresponds to the price for Russian gas exports at the Russian border. The Economy Ministry believed that gas prices should not rise further, he said. There were neither economic nor logical reasons to raise prices to $70 per 1,000 cubic meters, as Gazprom suggested, Mr. Gref added.