Americans have spent the past few years lamenting inflation, but price increases in Russia are staggering by comparison—just one of many signs of an overheating economy.
Official data shows that staples like butter, some meats, and onions have risen in price by about 25% over the past year. Some supermarkets now store butter in locked cabinets due to thefts, as highlighted on Russian social media.
Overall inflation hovers near 10%, far surpassing the central bank’s expectations.
This inflation surge is largely fuelled by soaring wages, as the Kremlin channels billions into its military sector and deploys millions of men to Ukraine.
Amid the war, non-defence industries struggle to retain workers without significantly raising wages, which leads to higher prices and perpetuates the cycle.
“Prices are rising because of the war,” said Alexandra Prokopenko from the Carnegie Russia Eurasia Centre in Berlin. “Economic demand is skewed toward unproductive spending. Employers must offer higher wages to attract labour.”
Some economists describe this phenomenon as "growth without development." While national income grows, investments in health, education, technology, and infrastructure remain stagnant.
To combat inflation, the central bank raised its key interest rate to a historic 21% in October. However, a prominent group of Russian economists recently warned on Telegram that inflationary pressures are unlikely to abate and may even worsen.
President Vladimir Putin recently noted that Russia’s economy faces a significant labour shortage, estimating the need for nearly 1 million additional workers. He cited the unemployment rate of 2.4%—"virtually no unemployment"—as a barrier to growth.
At a recent think tank summit, Putin stated that construction alone could absorb 600,000 workers, while manufacturing needs at least another 250,000.
High labour costs and interest rates are squeezing businesses. Alfa Bank reported last month that companies are already struggling, and the higher interest rates could exacerbate the risk of bankruptcies. The bank anticipates further rate hikes, potentially reaching 23%.
The root of the issue lies in the Kremlin’s spending priorities. Russia’s military budget is set to grow by nearly 25% in 2025, constituting one-third of state spending and 6.3% of GDP. When combined with "national security" expenditures, these account for 40% of the federal budget. Defence spending next year is projected to more than double allocations for social benefits and pensions.
Source:
CNN
