Rising inflation in Russia strains the economy under war expenses
16 June 2024 14:12
In May, Russia's inflation rate accelerated again. The Moscow Times points out that, according to officials, the economy is overheating due to increased spending on the war in Ukraine.
The Russian statistical agency Rosstat reported on Friday that in May 2024, inflation in Russia was 8.3 percent year over year, the highest level since February 2023.
In April 2024, the agency reported a price increase of 7.8 percent year over year. The latest data significantly exceeds Russia's inflation target of 4 percent.
Inflation in Russia. War expenditures drive up prices
"The Moscow Times" reports that, according to Russian officials, the increase in government spending has supported the economy in the face of Western sanctions. Still, it has also led to a sharp rise in prices and labour shortages in many sectors unrelated to the aggression in Ukraine.
Furthermore, the rapid price increase has pressured the Russian central bank to continue raising interest rates to control inflation.
Last week, the bank maintained its primary interest rate at 16 percent but signaled that it might raise borrowing costs in the future if the rate of price increases does not slow down.
German Gref, president of the state-owned Sberbank, warned last week that economic growth in Russia is "fragile" because it is based on government spending, which drives up wages and consumer spending, rather than investments or productivity growth.
Price increases hinder Russia's economic growth
Analysts from the Polish Economic Institute (PIE) noted in their last weekly report that over the past 12 months, the average salary in Russia has increased by 17.1 percent, indicating a high real result.
According to PIE, further increases in interest rates will have a "negative impact on economic growth".
Moreover, the report's authors also point to unconventional methods of fighting inflation introduced by the Russian government. The Federal Antimonopoly Service (FAS) issued a warning letter to one of the largest information portals, Infoline, concerning the publication of inflation forecasts, where the portal reported an upcoming increase in building material prices.
