Over 4 percentage points above the inflation target: Rising inflation pushes Russia towards economic strain amid war spending

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% year over year, the highest level since February 2023.

In April 2024, the agency reported a price increase of 7.8% year-over-year. The latest data significantly exceeds the inflation target in Russia, which is 4%.

"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 conflict 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 main interest rate at 16% but signalled 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.