Inflation in Russia is surpassing expectations, prompting the country’s central bank chief to consider an interest rate hike later this month. Prices have been increasing rapidly since the full-scale invasion of Ukraine in February 2022, resulting in a massive increase in military spending by the Kremlin.
The surge in public expenditure, coupled with severe labor shortages in various sectors, has resulted in an inflationary spiral gripping the country. Governor Elvira Nabiullina stated during a televised news conference that a discussion of a rate hike would take place in July and the main topic would likely be the extent of the increase. Russia’s key interest rate currently stands at 16% after multiple hikes last year aimed at curbing inflation and stabilizing the ruble.
Despite these efforts, inflation remained at 8.3% annually in May, well above the central bank’s 4.0% target. The next rate-setting meeting is scheduled for July 26th. Data indicates that inflation has significantly deviated from previous forecasts, according to Nabiullina. As one of President Vladimir Putin’s key economic officials, she has been praised for managing the Russian economy amidst sanctions but has also faced criticism.
The funding measures for the Ukrainian war have injected cash into the economy, boosting growth while fueling inflation. Nabiullina also highlighted complications with international payments due to recent U.S. sanctions, which have increased transaction costs for importers. Washington has threatened sanctions on foreign banks that provide services to sanctioned Russian companies or assist in financing banned imports.
