Causes of repressed inflation in the Soviet consumer market : Retail price subsidies, the sihponing effect and the budget deficit

Abstract

Using recently available Soviet material, this paper analyses the causes of repressed inflation in the Soviet consumer market during 1965-1989.We found that retail price subsidies, which rose from 4% of state budget expenditure in 1965 to 20% in the late 1980s, intensified consumer market disequilibrium.The provision of these subsidies had negative effects on the market by maintaining the purchasing power of households for consumer goods and by increasing the budget deficit.Furthermore, the demand of enterprises for consumer goods without legitimate permission tended to increase during 1965-1989. Keywords: repressed inflation, Soviet Union, retail price subsidies, the siphoning effect, the budget deficit