Russia's annual inflation will exceed the government's target, according to Central Bank first deputy chairman Gennady Melikyan. The fears have prompted the government, as well as the Central Bank, to tighten their belts in order to fight rising inflation

Inflation might reach 12% in 2008, yet the forecast was 10.5%. Consumer prices have already risen 8.1% this year.

The Russian central bank has taken the course of tightening its monetary policy, slightly raising interest rates – but it has admitted that it won't meet its inflation target.

Mr Melikyan admits he expects a slowdown in the consumer prices growths in the second half of the year. “I think the inflation in 2008 will be a double digit, something like 12%,” he said.

The Central Bank has allowed a huge increase in the money supply in recent years, reaching 51% in 2007, adding to the inflationary pressure.

Russia’s finance minister Alexei Kudrin believes the Central Bank is now taking the right steps to tackle the problem. He pointed out the bank has held its money supply growth within 30% for the first time during the last 10 years. “It’s a realistic figure that will support the stability of the Russian economy,” the minister said.

In July the government will present new inflation figures for 2008.

Many economists believe the shift of the inflation target towards a more realistic estimate is better for business – rather than a desirable figure that the government persistently fails to meet.