Russian inflation spirals beyond Kremlin's control amidst record-high interest rates
2:07 PM EST, December 16, 2023
Presidential elections in Russia are slated for mid-March 2024. The clear candidate, in no uncertain terms, is Vladimir Putin. However, this doesn't negate the necessity for him to discuss uncomfortable topics during his campaign. One such undeniable issue is the escalating inflation in the Russian Federation.
Official data reflects a continual rise in the prices of goods and services in Russia. Inflation was at 5.3 percent in August, and by December it hit nearly 7.5 percent. However, it's important to mention that independent experts argue that the data from Russian authorities doesn't accurately represent reality. In July, American economist Steve Hanke asserted that Russian inflation has touched 65 percent, while the official figure declared was slightly above 4 percent.
Returning, however, to what the Kremlin proclaims, Putin acknowledged on Thursday (December 13) that inflation would likely be around 8 percent by the end of the year. He also maintained that the central bank is managing the situation, which was confirmed on Friday.
A further hit to the pockets of Russian borrowers
On Friday, the Bank of Russia increased its key interest rate from 15 percent to 16 percent. The Bloomberg Agency observes that this is the highest level since April 2022, nearly mirroring the commencement of the Ukraine invasion.
The fifth consecutive rate hike will bring about, among other things, a rise in loan installments for Russians. The cycle began in August this year during a special meeting. The primary rate then ascended from 8.5 percent to 12 percent. Notably, the Bank of Russia declared that it would draw in its reins next year, although this doesn't necessarily imply further raises.
Until we witness a continuous trend towards decreasing price growth and lowering inflation expectations, the base rate will remain high for as long as necessary - said Elvira Nabiullina, President of the Central Bank of the Russian Federation.
As per the Bank of Russia, what's fueling the inflation rise? Nabiullina cited elements such as a weak ruble and unfulfilled demand, both of which are tied to the sanctions and absence of Western brands in the market.
