Inflation in Russia soars to 9.5% at the end of 2024 despite the efforts of the central bank. The conflict in Ukraine and the sanctions weigh heavily. An economic headache for Putin who must juggle between the fight against the high cost of living and support for the war. How far will this inflationary spiral go? The Russians are holding their breath…
Despite the strenuous efforts of the Russian central bank to stem the rise in prices, inflation ended the year 2024 on a high, reaching 9.5% at an annual rate according to the national agency Rosstat. A new blow for an economy already weakened by nearly three years of conflict in Ukraine.
The central bank stays the course despite the discontent
Faced with this inflationary surge, the governor of the Central Bank of Russia (BCR) Elvira Nabiullina is sticking to her positions. His credo: contain the rise in prices at all costs to preserve the purchasing power of Russians, even if it means sacrificing growth. Result, the key rate remains frozen at 21%, a record since 2003.
A restrictive monetary policy which is not unanimous among the big Russian bosses. German Gref, influential boss of Sberbank, publicly denounced this strategy, saying that “the economy cannot survive like this for long”. Same story with Sergei Tchemezov, close to Vladimir Putin and director of the military-industrial conglomerate Rostec, who considers the current levels of interest rates, oscillating between 25 and 30%, “crazy”.
Tensions on the job market
In addition to soaring military spending and Western sanctions, inflation is fueled by chronic labor shortages. Since the start of the offensive in Ukraine in February 2022, hundreds of thousands of men have been mobilized to the front or fled abroad. As a result, Russian companies must offer ever more attractive salaries to recruit, which contributes to the inflationary spiral.
Between the hammer of war and the anvil of inflation
Despite this deleterious economic context, the Kremlin seems determined to continue its “special military operation” in Ukraine at all costs. A difficult choice for Vladimir Putin, torn between his hammered objective of “victory” and the need to contain the discontent of a population affected by soaring prices. The 36% explosion in the price of butter in one yearwidely relayed by the Russian press, illustrates the precariousness of daily life for many Russians.
A decline in inflation will be hampered by a range of direct and indirect consequences of sanctions.
Analysts from the Austrian bank Raiffeisen
In these conditions, it is difficult to envisage a respite on the inflation front. According to BCR projections, Russian GDP growth expected to decelerate to 0.5-1.5% in 2025weighed down by the headwinds of international sanctions. A situation that is not conducive to a lull in prices, as highlighted by analysts from the Austrian bank Raiffeisen, for whom “a drop in inflation will be hampered by a set of direct and indirect consequences of the sanctions”.
Between inflationary pressures, all-out offensives and domestic discontent, Vladimir Putin plays a complex game of chess whose outcome is more uncertain than ever. Will the master of the Kremlin be able to find the fragile balance between his geopolitical ambitions and the economic survival of his country? The next few months will be decisive. In the meantime, Russians are seeing their purchasing power melt away like snow in the sun, caught in the grip of galloping inflation and an ever darker future.
Related News :