Inflation surge reveals cracks in Russia's economic strategy
Inflation in Russia significantly exceeds the target set by the Central Bank of 4 per cent. Despite maintaining the main interest rate at a high level of 16 per cent, domestic demand still poses a pro-inflationary risk, and the bank authorities do not rule out further increases, according to the PIE Weekly.
The report's authors note that for almost a year, the price growth rate in Russia has been higher than the inflation target set by the Central Bank by 4 per cent. They attribute this to a shortage of workers caused by mass emigration and military conscriptions. This has led to 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 approximately 17 per cent, which is also high 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 over 5 months from 7.5 per cent to 16 per cent. 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 negatively impact economic growth, according to 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 most significant 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 economists' forecasts, arguing that pessimistic forecasts fuel inflation expectations, which artificially increase 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 high inflation expectations. High government spending, particularly on military purposes, is an additional pro-inflationary factor.
As the authors summarize, it will be difficult for the Russian government to achieve economic stabilization under such conditions.
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."
