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- 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.
Despite dire predictions, Russia’s economy has managed to survive and even thrive for over 32 months since its complete invasion of Ukraine.
Russia’s red-hot wartime economy, however, comes at a cost, namely inflation. In September, inflation soared to 9.8%.
According to official statistics, the cost of potatoes, a staple food item in Russia, has surged by 64% as of November 5th, reflecting the trickle-down effect of price hikes on basic food items.
The surge in potato prices can be attributed to adverse weather conditions and the increasing cost of production, which is further exacerbated by a shortage of labor and rising wages.
Food prices have experienced a general increase this year, and it’s not limited to just potatoes. According to Rosstat, Russia’s federal statistics service, the data reveals a rise in prices for various food items.
Late in October, economists on the MMI Telegram channel, a Russian discussion group, expressed their concern over the alarming increase in prices.
People are resorting to stealing butter from supermarkets due to the alarming increase in butter prices, which have surged by 27.5% this year.
According to reports from Russian media, inflation has affected various processed goods in recent months. This includes staples like bread, dairy products, chocolate, and even beer.
The increase in food prices before Christmas is not a new phenomenon.
In 2020, egg prices experienced a significant surge, prompting Russian President Vladimir Putin to issue an apology.
In an effort to control inflation, Russia’s central bank recently raised its key interest rate to a historic high of 21% last month. Additionally, the bank has indicated that it may further increase the rate at its next meeting in December.
Business leaders are expressing their frustration with the central bank’s policies, as high interest rates continue to be a source of irritation for them.
In a recent address to Russian senators, Sergei Chemezov, the CEO of Rostec, expressed concern over the impact of “record” interest rates on the company’s profits. He highlighted that these high interest rates were significantly eroding their earnings.
Chemezov went on to caution that the exorbitant interest rates would ultimately lead to the financial ruin of numerous businesses.
Officials and business leaders attending an economic forum in central Russia last week shared their concerns over the country’s economy for the upcoming year. They expressed pessimism, predicting lower-than-expected growth and investment delays attributed to the central bank’s rate hike and a lack of state funding.