Huge Fuel Price Boosts Next for Russians : Economy: New spiral of inflation looms. Yeltsin retains government controls on energy costs.

Russian President Boris N. Yeltsin hit consumers Monday with a decree allowing wholesale fuel prices to jump by up to 500% but, in a retreat from his radical plans to free virtually all key prices, he retained strict government control over energy costs.

Climaxing more than four months of price reforms, the decree was expected to unleash a new spiral of inflation and bring a further drop in Russian industrial production, which is already plummeting.

But Russia could no longer postpone raising fuel prices, which have been so heavily subsidized that a gallon of gas at the pump went for less than it cost to produce.

And officials said that with overall prices expected to triple by next January anyway, higher oil and natural gas costs would only boost the rate of inflation by another 50% or so, and the fall in production would also not be drastically affected.

“This price hike was absolutely inevitable,” contended Vladimir Lopukhin, Russia’s energy minister.

Although the decree came as part of Russia’s push to bring its prices in line with world levels, Russian domestic fuel prices will still remain far below international standards, holding back the country’s integration into the global economy, Lopukhin acknowledged.

A gallon of gasoline under the new price caps will cost drivers about 30 cents, an extravagance for Russians who earn an average salary of about $20 a month under current exchange rates but still absurdly underpriced.

Nonetheless, Lopukhin said, the price reform is a step forward and will serve to bolster the faltering Russian oil industry by bringing in much more money to be invested in new equipment and technology as well as developing new wells.

“If this decision hadn’t been made, we would have lost our country’s main export,” Lopukhin said.

He estimated that Russia would export about as much oil this year as last year--60 million tons. The price for exported oil is determined separately from the domestic price, so Yeltsin’s decree is not expected to affect it.

Economics Minister Andrei Nechayev admitted that Monday’s decree obviously deviated from the Yeltsin administration’s reform program, which is designed to transform the moribund, Communist-created economy by freeing state-set prices, stabilizing the currency and then creating a large, dynamic private sector by selling off state property.

However, Nechayev said, he did not see the decree as a “great anti-market crime,” but rather as a stopgap measure that would allow the government to ease into freeing fuel prices without doing too much damage to the economy.

“This decree is not for eternity,” he said. In about three months, Nechayev promised, the government will free up fuel prices altogether.

But for now, he said, experts had simply feared that prices would rocket too high, crippling the economy even further by making production and transport costs vastly more expensive.

The International Monetary Fund, which had been pressing Russia to raise its fuel prices by a factor of 10 or 15, accepted the decree “reluctantly, but with understanding,” Nechayev said.

The Russian government had already begun to free energy prices this year with a previous decree that allowed 40% of gasoline and other fuels to be sold at uncontrolled prices. That system, however, led to unnaturally inflated prices in the free market sector and widespread corruption among officials determining who was allowed to buy at the low, state price.

“I think everything should be either free or not free,” Nechayev said, explaining his support for the decree despite his free market beliefs. “Otherwise, it’s like being a little pregnant.”