Inflation Soars in Russia

Russia’s CPI reached 9.5% this December as government spending has pulled the reigns away from the central bank. Inflation elevated from 8.9% YoY in November to 9.5%, slightly below expectations of 9.7%. Prices are up 1.3% on a monthly basis overall, but Russians are feeling the impact of war.

Services from 11.4% to 11.5% on the yearly while non-food goods are up from 5.7% YoY to 6.1% Prices at the grocery store have soared from 9.9% YoY to 11.1% as Russia struggles to find reasonably priced imports. Core inflation is up 1% monthly, but up 10% over the past four quarters. The central bank is lightyears away from its 4% inflation target. The spread between rates and inflation is a concerning 11.5%.

Russia’s Central Bank maintained its policy rate of 21% in December. This is not a money supply issue and government cannot curtail spending amid a rapidly escalating war effort. The Kremlin pumped 10 trillion rubles ($100 billion) into military spending last year and that figure will continue to grow. Russia’s economy still grew by 4% in 2024 as it adapted to trade without the West.

Analysts had expected the central bank to raise rates in December, but that would not have deterred government borrowing. The Kremlin also required banks to issue state-direct soft loans to military defense contractors for 25 trillion ($250 billion). As we are seeing in Russia, there is absolutely nothing more inflationary than war.