Rising inflation pressures Russia amid economic challenges
Inflation in Russia significantly exceeds the target set by the Central Bank of 4 percent. Despite maintaining the main interest rate at a high level of 16 percent, domestic demand still poses a pro-inflationary risk, and the bank authorities do not rule out further increases, as reported in the PIE weekly.
The report's authors note that for almost a year the rate of price growth in Russia has been higher than the inflation target set by the Central Bank at 4 percent. According to them, this is due to a shortage of workers caused by mass emigration and military conscriptions. This results in a significant wage increase, as employers strive to retain highly skilled personnel at any cost. Over the past 12 months, the average wage has increased by 17.1 percent, which is also a high figure in real terms.
Inflation increasingly a problem in Russia
The report states that the Central Bank of Russia is fighting rising inflation by maintaining the main interest rate at a high level. In the second half of 2023, it gradually raised it over 5 months from 7.5 percent to 16 percent. Despite significantly restrictive policies, domestic demand continues to pose a pro-inflationary risk. Therefore, as the authors note, the bank's authorities do not rule out further increases, although this will hurt economic growth, write the authors of the Polish Economic Institute publication.
The report's authors also point to unconventional methods of fighting inflation employed 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, in which the portal reported on the upcoming increase in building materials prices.
Inflation expectations in Russia on the rise
The report notes that FAS intends to monitor forecasts published by economists, arguing that negative forecasts fuel inflation expectations, which artificially increases price growth.
The report also indicates that forecasting economic indicators in Russia is hampered due to the geopolitical situation. The main pro-inflationary risks are associated with changes in foreign trade conditions, including geopolitical tensions and the persistence of high inflation expectations. High government spending, particularly on military purposes, is an additional pro-inflationary factor.
Under such conditions, as the authors summarize, it will be difficult for the Russian government to achieve economic stabilization.
Russia also has other problems. The United States announced a broad package of sanctions on Wednesday, targeting Vladimir Putin's "war machine." The new restrictions have affected the Moscow stock exchange, which responded by suspending trading in dollars and euros. "The ruble is collapsing," announced "The Kyiv Post."
