In Russia, official figures of galloping inflation are a sign of economic instability. The Russian Central Bank (BCR) was unable to contain the rise in prices despite the strategy adopted according to an analysis by The Insider. Last October, it announced raising its key rate from 19 to 21% in order to control inflation. A record level, never reached since 2003. In theory, increasing this key rate makes it possible to increase banks' borrowing rates, and thus control the quantity of money in circulation in the economy.
However, price increases continue to rise. In October Russia's annualized rate was 8.54%. It increased again in December. A phenomenon which resulted in a devaluation of the ruble to a historic level of 133 rubles per 1 euro (120 rubles per 1 dollar). However, the Central Bank stopped this fall by temporarily suspending the purchase of foreign currencies.
Russia of the silent steppes
Find the causes of inflation
How can we explain the situation in which Russia finds itself? In most cases, a national currency devalues when the government spends far more than it earns and has to borrow more from the central bank. But this is not the case for Russia currently. According to IMF estimates, its 2024 budget deficit will be less than 2% of GDP, less than any G7 country.
Only one reason seems to explain inflation: the ruble money supply is growing far too quickly under the leadership of the Central Bank. The money supply growth rate increases by 20% year over year. According to The Insider, with such a rate, it even seems surprising that inflation does not increase more than that.
Money continues to be injected en masse
For their part, businesses borrow at very high rates but with great confidence, thanks to the illusion of growth created by Russian propaganda. Thus, money continues to be injected en masse into the economy. Over the past year, loan portfolios of Russian banks increased by 21%, funds on accounts with the Central Bank increased by 56%, and total assets increased by 28%.
The Insider therefore interprets inflation in Russia as an eminently political phenomenon. The government preferring “hide the country's problems” rather than sustainably stabilizing the economy and prices. However, the situation could well change according to the Central Bank's forecasts for the year 2025 which suggest that the money supply will grow more slowly.
