Inter-regional Variability of Inflation Rates

Theoretical considerations suggest that as market institutions are developing in Russian regions, the divergence of regional consumer price levels, which has been caused by the price liberalization of 1992, should give way to price level convergence. Using price dynamics data (overall consumer price indices, food price indices, manufactured goods price indices, service price indices) across 7 regions of West Siberia over 1992–1998, the tendency of such convergence is studied. The speed in which regional price levels converge to the national price level and to the price levels of other regions is estimated. Besides that, the price differential thresholds, below which interregional arbitrage becomes unprofitable, are also estimated.