- Russia’s economy faces stress as high interest rates fail to control inflation.
- Inflation hits 9.8% in September, with prices of food staples surging this year.
- Business leaders criticize high rates, warning of potential bankruptcies and an economic slowdown.
Russia’s economy has defied doomsday predictions more than 32 months into its full-scale invasion of Ukraine.
But Russia’s red-hot wartime economy comes with a price: inflation, which hit 9.8% in September.
The price hikes are trickling down to basic food items, with prices of potatoes — a Russian staple — surging this year by 64% as of November 5, according to official statistics.
Potatoes’ price surge stems from bad weather and the rising cost of production amid a labor shortage and rising wages.
It’s not just potatoes. The data from Rosstat, Russia’s federal statistics service, show that food prices have generally risen across the board this year.
In late October, economists on the MMI Telegram channel, a Russian discussion group, called the acceleration in prices “frightening.”
The situation is so bad that people are stealing butter from supermarkets. Butter prices have risen by 27.5% this year.
Inflation has also hit a range of processed goods in recent months, including bread, dairy, chocolate, and beer, Russian media reported.
The pre-Christmas surge in food prices isn’t new.
Last year, Russian President Vladimir Putin had to apologize for a jump in egg prices.
To tame prices, Russia’s central bank has hiked its key interest rate to a record high of 21% last month. It said last week that it could hike its key rate again at its next meeting in December.
High interest rates are irritating business leaders, who are more loudly critiquing the central bank’s policies.
Sergei Chemezov, the CEO of the defense conglomerate Rostec, said in an address to Russian senators in late October that “record” interest rates were “eating up” profits.
Chemezov further warned that the high borrowing rates would eventually bankrupt most enterprises.
Last week, officials and business leaders at an economic forum in central Russia expressed pessimism about the country’s economy next year. They predict lower-than-expected growth and investment delays due to the central bank’s rate hike and a lack of state funding.
