The combination of a strong ruble and high oil prices will temporarily tame inflation, however, it also could accelerate consumer prices in the future, according to Doctor of Economics Denis Domashchenko, as quoted by the Russian business daily RBC.
The analyst warns that the dominance of energy sector revenues along with a firm national currency may evoke the so-called ‘Dutch disease’.
In economics, the ‘Dutch disease’ is the seemingly causal relationship between the increase in economic development of a specific sector and a decline in other sectors. It could emerge as the negative consequences that can arise from a spike in the value of a nation’s currency due to the rapid growth of the export of goods of one dominant industry, most commonly fossil fuels. At first, the influx of foreign currency reduces inflation in the country, but at the same time, it slows down the development of other industries and hinders economic growth, leading to price acceleration.
The term was first used in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959.