In 1992, the first year of economic reform, retail prices in Russia increased by 2,520 percent. A major cause of the increase was the decontrol of most prices in January 1992, a step that prompted an average price increase of 245 percent in that month alone. By 1993 the annual rate had declined to 840 percent, still a very high figure. In 1994 the inflation rate had improved to 224 percent.
Trends in annual inflation rates mask variations in monthly rates, however. In 1994, for example, the Government managed to reduce monthly rates from 21 percent in January to 4 percent in August, but rates climbed once again, to 16.4 percent by December and 18 percent by January 1995. Instability in Russian monetary policy caused the variations. After tightening the flow of money early in 1994, the Government loosened its restrictions in response to demands for credits by agriculture, industries in the Far North, and some favored large enterprises. In 1995 the pattern was avoided more successfully by maintaining the tight monetary policy adopted early in the year and by passing a relatively stringent budget. Thus, the monthly inflation rate held virtually steady below 5 percent in the last quarter of the year. For the first half of 1996, the inflation rate was 16.5 percent. However, experts noted that control of inflation was aided substantially by the failure to pay wages to workers in state enterprises, a policy that kept prices low by depressing demand.