< strong>While Russia continues to wage war in Ukraine, it also faces internal problems - inflation. Last year, Russia's central bank doubled its key interest rate in an attempt to control prices.
However, inflation continues to rise, reaching 9% this month. The prices of goods and services in various sectors are rising - from potatoes (by 91% this year) to flights in economy class (by 35%), reported The Wall Street Journal (WSJ), cited by news.bg .
On Friday, the Central Bank raised its key interest rate - by two percentage points, to 18% per annum. Inflation became a characteristic feature of the Russian military economy. The rise in prices is due to rising military spending as well as record labor shortages as some working-age men go to the front and others leave the country. New US sanctions have made international payments more difficult and increased costs for importers.
And while prices are not rising fast enough to cause an economic crisis or social unrest, they are a sign of a growing imbalance in the economy. Accelerating inflation also means that military conflicts will become increasingly expensive for Russia.
"In the fight against inflation, the Russian authorities do not have good options - they cannot stop the war, they cannot solve the employment problem and they cannot stop raising people's wages. As long as the war continues, inflation will remain high," said Alexandra Prokopenko, a former economist at the Central Bank of Russia and a researcher at the Carnegie Center.
On Thursday, the Kremlin said it was working on measures to curb prices as "some inflationary processes are causing concern to the government and the central bank".
The first months of fighting in Ukraine caused a recession in the Russian economy, but it quickly recovered as the state and companies found ways to circumvent Western sanctions. At the same time, the economy began a broader transformation. The government has reverted to Soviet-style military spending, which is about 7% of GDP. Today, military spending in Russia has become the main engine of economic growth.
Factories producing tanks, drones and ammunition for the soldiers operate in multiple shifts seven days a week. In May, Vladimir Putin appointed a new minister of defense - Andrey Belousov, a macroeconomist and supporter of state intervention in the economy. According to economists, this appointment confirms that the economy and war are already closely related.
Since December last year, the central bank has kept the key interest rate at 16%, but this has had little effect on slowing inflation. In addition, this month the Russian government canceled preferential mortgage loans at 8%. According to experts, this program contributed to the inflation of the real estate market bubble. In a recent report, analysts at J.P. Morgan noted that tight monetary policy in Russia "remains a puzzling phenomenon".
For Russians, inflation evokes memories of the economic crisis in the 1990s. Many of them cut back on their spending and gave up traveling on vacation. Others have joined Telegram communities and share tips on where to find bargains.
The labor shortage is exacerbated by the country's demographic gap. According to data from the Central Bank, companies experience a shortage of both highly qualified specialists and workers. In the last 18 months, the defense sector has attracted more than half a million workers from the civilian sector. But despite this, today defense industry companies lack about 160,000 specialists.
Russian importers are also suffering because of US sanctions. Chinese exports have declined significantly in recent months. Turkey's trade with Russia has also slowed under the pressure of sanctions.
Usually, Russia and its partners found ways around the sanctions. But that won't happen again for long because the US won't stop. Russian consumers and businesses will ultimately have to pay the price.
Russian dictator Vladimir Putin's claims that the Russian economy is in excellent shape may soon prove unfounded. According to Yury Gorodnichenko, an economist at the University of California, Berkeley, the economy of the aggressor country is in deep trouble and will enter a devastating recession in just one year.
In an interview with Business Insider, he notes that Russia is losing two things its economy desperately needs. These are the large-scale energy trade and the constant flow of US dollars.