Janice R. Andrews
Inflation in Russia has sharply increased as the ongoing military offensive in Ukraine continues to strain the country’s economy. Official data released on Wednesday shows inflation reaching 9.5% in 2024, up from 7.4% in 2023, marking the fourth consecutive year inflation has far exceeded the Kremlin’s 4% target.
Record-high government spending to sustain the war effort has shielded the economy from a recession but fueled significant labor shortages and rising prices. Despite raising interest rates to a two-decade high of 21%, the central bank has been unable to bring inflation under control.
Rising Prices and Public Concern
The inflation surge has hit Russian households hard, with food prices increasing by 11.4% in 2024. Butter prices alone jumped by 36%, according to Rosstat, Russia’s statistics agency. Even state-controlled media have highlighted public concerns over skyrocketing costs, a rare acknowledgment of economic challenges.
The sharp rise in prices has raised fears of social unrest, evoking memories of the economic instability and hyperinflation of the 1990s. While President Vladimir Putin has called inflation a “worrying signal,” he remains committed to the military campaign, now approaching its fourth year.
Economic Risks Ahead
Economists warn that Russia may be heading toward stagflation, a combination of slow economic growth and high inflation. Growth is expected to decelerate further in 2025, intensifying the country’s economic challenges. Labor shortages have worsened, with hundreds of thousands of men enlisted in the military, employed in arms production, or fleeing the country since the conflict began in February 2022.
Military spending has surged to nearly 9% of GDP, with another 30% increase planned for 2025, according to government figures. This aggressive fiscal spending has rendered traditional monetary policy tools, like interest rate hikes, less effective in controlling inflation.
Central Bank Under Pressure
The Russian central bank, led by Governor Elvira Nabiullina, has faced criticism from prominent business leaders over its steep rate hikes. Sberbank CEO German Gref warned in December that “the economy can’t survive like this for long,” while Rostec CEO Sergei Chemezov called the high borrowing costs “madness.”
Despite the criticism, the central bank paused an anticipated rate hike in December, shortly after President Putin publicly urged a “well-balanced” approach. Analysts argue that government-driven stimulus, including subsidized loans and defense spending, has limited the bank’s ability to control inflation effectively.
Impact of Sanctions
Western sanctions have added to Russia’s economic woes, particularly in its critical oil sector. Recent U.S. measures targeted two major oil producers and numerous tankers used to export Russian oil, aiming to cut off funding for the war effort. Ukraine has called for even stricter sanctions to further pressure Moscow’s revenues.
These sanctions have compounded the challenges facing Russia’s economy, making it harder to stabilize inflation and protect the ruble’s value.
Bleak Outlook for 2025
Analysts remain doubtful that inflation will significantly decline in 2025. A report from Raiffeisen Bank noted that sanctions and their ripple effects will continue to weigh on the economy. “A fall in inflation will be hampered by a set of both direct and indirect consequences of sanctions,” the report stated.
With the Kremlin prioritizing military expenditures over economic stability, Russia faces mounting challenges. Persistent inflation, labor shortages, and sluggish growth point to a difficult year ahead, with no immediate solutions in sight.
This revised article highlights Russia’s inflation crisis amid the ongoing conflict in Ukraine, emphasizing the economic, social, and geopolitical challenges facing the nation.
