December 4, 2023 MEMRI Daily Brief No. 550

Can The Inflation Increase In Russia Affect Its Social 'Stability'?

December 4, 2023 | By Dr. Vladislav L. Inozemtsev*
Russia | MEMRI Daily Brief No. 550

As we reach the end of 2023, while the Russian government celebrates "healthy" econo­mic growth of around 3%,[1] ordinary Russians seem to be disturbed by the rapid increase in retail prices. By late November, the cost of many foodstuffs (including "benchmark" bananas and eggs), staple goods and services recorded a solid jump: eggs are now 23%, more expensive than they were a year ago, poultry 26%, bananas 47%, oranges 80%, and tomatoes 121%.[2] In its attempt to fight accelerating inflation, the Roskomnadzor, the Russian federal executive agency responsible for monitoring, controlling and censoring Russian mass media, blocked a popular website "Prices today" where different prices were compared from across the country.[3] Meanwhile, as the Bank of Russia gradually revises its 2023 inflation forecast to 7.5% from 5%, as was released in July,[4] the Kremlin is addressing the issue extremely often as it has become a matter of concern among the Russian population.


The Inflation In Russia Is Different From That In The West

How serious is the challenge and may it cause visible discontent in Russian society? Contrary to many experts, I would say that the problem is a bit exaggerated and that the government in some sense is fighting a phenomenon that it has created itself, albeit by different means and for different reasons.

Inflation in Russia is largely different from that seen in Western countries, where it is mostly caused by either an excessive money supply or by significant hikes in the prices of some goods, as happened with oil in the 1970s and early 1980s and, to a much lesser degree, last year. In Russia, the situation looks different in at least two aspects.

On the one hand, the country is extremely dependent on imports: In some sectors, reliance is close to 100%. Some studies have shown that, in the wake of the war in Ukraine, a Russian would spend 73% of their money on everyday food and staples. As 25% of foodstuffs and 50% of consumer goods are imported, this means that the imported goods accounted for 34-37% of consumer expenditures.[5] Hence, a 10% increase of dollar (or yuan) value translates into a 2.5-3.5% jump in prices.

On the other hand, the Russian government has been used to periodic increases of tariffs and costs of goods and services supplied by large state-owned companies – from Gazprom to the Russian Railways. This improves the financial conditions of these enterprises – for example, gas tariffs will increase by around 20% in the coming year and a half,[6] after being increased twice in 2022[7] – but adds to the inflationary pressure in the entire Russian economy. The increasing money supply also counts, mainly because it seems that these days Russia's Finance Ministry is "selling" to the Bank of Russia fictitious dollars and euros that are virtually kept in the National Wealth Fund, but that are frozen by Western financial authorities. This scheme allows the government to switch the imaginary hard currency to the Bank of Russia's account and to get the real rubles instead.[7]

Russian inflation not only differs from Western inflation, but it seems that historically the Russian economy is not so afraid of it. What counts is the business environment and the state's regulatory policy, while the price increa­ses appear to be not too damaging. In the year 2000, when annual GDP growth hit the post-Soviet record of 10%,[9] official inflation stood at 20.2% per year,[10] while the 2000-2007 economic boom, during which the GDP increased by 74% and the real disposable incomes increased by 240%, took place when average annual inflation amounted to 13.7%.[11] To compare: between 2012 and 2021, when the average inflation figures decreased to less than 6.5% per year,[12] the GDP growth plunged to less than 1% annually,[13] and the real disposable incomes stagnated for around a decade. Therefore, the acceleration of inflation should not be seen as a tragedy – much more disturbing is how the financial authorities want to counter it.

Fighting Inflation

The Russian government possesses several means to fight inflation. It can, first, slow the increase of the money supply, second, control the ruble exchange rate, third, increase the key interest rate, and fourth, refrain from price hikes introduced by state enterprises.

Among all these four measures, the authorities seem to rely only on Bank of Russia's monetary decisions. In the past five months, the key interest rate was elevated four times – from 7.5 to 15% per annum, and it may be taken to 17% in December. The Finance Ministry and the Kremlin praised the Bank of Russia's efforts, though it may not be able to cure the problem.

Looking at developments in the Russian financial markets, it is possible to note that in 2022 and 2023 there were two waves of rising prices, and both were quite specifically dependent on the key rate and exchange rate.

After the start of the war, the prices shot up by more than 9% in March and April while the key rate at the time was elevated to 20% – and they were almost unchanged from May through December as the key rate fell to 7.5%.[14] Why did it happen? The most crucial factor was the exchange rate that spiked to almost 140 rubles to the dollar in March but was torn down by the government's order to sell all the hard currency revenues for rubles.[15] This requirement, combined with a huge in­flow of foreign currency caused by the record energy prices in Europe, has brought the value of the ruble back to almost 50 rubles to the dollar, dragging prices down from their April highs. The retail prices decreased every month from May to September.

From October 2022 to July 2023, the monthly inflation rates increased by 300%, while the Bank of Russia kept rates intact. The reason, I would say, was the exchange rate, which declined back to 90 rubles to the dollar, causing a steep rise in import costs. When the dollar hit 100 rubles in mid-August, the Bank started to increase the rate,[16] but nothing serious happened – the same rate was reached once again in early October with prices continuing to roll.

Then, this autumn, when, on October 11, Russian President Vladimir Putin once again introduced a compulsory selloff of hard currency (the decree issued in the first days of war had been revoked in June 2022),[17] and since then the ruble appreciated by around 12%, and has been trading below 90 rubles to the dollar for more than a month already. To my mind, if the government is serious about fighting inflation, it should further press the dollar down by tightening currency regulations as the 2022 developments confirm that the prices are much more sensitive to exchange rates than to credit policies.

No Good Formula To Fight The Inflation

Rather than countering the price increases, the hikes in interest rates in Russia may have a pro-inflationary effect. The corporations are simply adding the rising costs to product prices, while the customers have no alternative to buying them. The "federal" corporations started to petition the government to compensate for the rising credit costs (many have done so already in recent months,[18] including the Russian Post, which was recently accused of creating "non-justified expenses" valued at 24.5 billion rubles in 2022 alone, which presumably benefited its management),[19] and therefore the budget expenses are growing, as are the costs of government borrowing.

Moreover, the increases in the interest rates stop neither companies nor people from borrowing since they believe the prices for goods and assets will increase and pay off the higher borrowing costs (in recent months, the issuance of mortgage loans hit new records).[20] Hence, the Bank of Russia's policy benefits mostly the financial sector. The pre-tax profits of the Russian commercial banks are expected to break the 2021 record this year and reach almost three trillion rubles.[21]

As happened in the 1990s, the government proved several times that stopping inflation through high interest rates was a failure, as it was also forced to shrink the money supply by not paying its bills to the enterprises and therefore ruining the economy. In 1997, after six consecutive years of contraction, the situation became close to "normal" as the inflation decelerated to the 1990s low of 11 percent.[22]

Therefore, the government has no good choices in fighting inflation: if it pushes the exchange rate lower, this will cause a decrease in budget revenue, but if it opts for interest rate hikes, the budget outlays will grow significantly.

The Inflation Will Not Level Out In The Coming Months

The situation looks especially bleak since the Kremlin needs more and more money to fund its war in Ukraine. In the recently adopted budget for 2024-2026, the Finance Ministry claims that the deficit will be limited to around 1% of the GDP for each of these three years – but the same ministry projects the Russian public debt to increase from the current 25.1 trillion to more than 40 trillion by the end of 2026 – this growth, I would say, is equal to 9% of 2023 GDP and not to 3-4%, as it would be if only 1.5-1.7 trillion of new debt were added every year.[23]

Russian authorities will increase both their borrowing and "selling" of non-existent funds from the National Wealth Fund thus increasing the money supply for all the coming years. In 2022 the M2 indicator ballooned by 24.4% and in 2023 it will rise by not less than 20%.[24] The money these days is locked into the national economy with much of it flowing directly into people's pockets, due to the increased wages in the military industrial sector and to growing paym­ents to the servicemen on the frontline as well to relatives of those killed in combat. Therefore, one may expect that the inflation will not level out in the coming months (the Bank of Russia also confirms that the prices will rise intensively in early 2024,[25] and there is little chance of pushing the inflation to its 4% benchmark next year).

Last but not least, the tariffs are also expected to grow quickly. I had already mentioned the gas price hikes, but, starting from the December 1, the Russian Railways were allowed to increase their freight and passenger tariffs by 10.75%.[26] The government is aware of the people's dependence on oil, gas, and transportation, and allows an increase in their costs. While the (official) increase in consumer prices accounted for just 6.7% in October 2023 compared with October 2022,[27] the increase of the producers' prices during the same time hit 16.7% and the rise of prices for energy and basic commodities peaked at 41.2%,[28] therefore opening possibilities for another round of consumer price increases.

It looks like the Kremlin has no alternative to this trend because Russia's largest corporations, and first of all Gazprom, are suffering huge losses from their disconnection from Western markets. Gazprom's financial reserves, for example, decreased by more than a trillion rubles in the last 12 months, forcing the company to cut its investments and allowing speculations about it huge losses in the coming years.[29]


Before summarizing the story of Russian inflation, I would say that it seems the Russian statistical bodies are trying to depict the problem as being far less acute than it is. This trend is not new. Because of this, analysts are calculating the so called "perceived inflation," or, price increases, as is felt by the majority of popu­lation.

The interesting thing is that the Russian people almost agree with the official estimates during times of crisis, when the prices are going up fast, but when the crisis seems to be over, the estimates started to diverge (the difference between the two figures may be as small as 40-60% in "hard" times but rises to almost 300% in "relaxed" ones).[30] This also makes me conclude that inflation in Russia looks like rather a persistent phenomenon, and the victory over it is quite difficult to achieve.

Can Russian government's anti-inflation efforts become successful? I would say that the answer to this question depends on two factors. On the one hand, the inflation can be lowered if the authorities keep the ruble strong, maybe even bringing it closer to 80 rubles to the dollar, and refrain from further hikes in interest rates and indexation of the state monopolies' tariffs. On the other hand, the government should somehow "sweeten" the already existing situation. Russian President Vladimir Putin tried to do this quite recently by increasing the minimum wage by 18% starting from January 1, 2024.[31] However, these steps may push the inflation upwards.

The Kremlin may talk a lot about fighting the inflation, but it lacks the determination to use all the existing levers to stop it, since it will run across too many interests that both the Russian state and its state-owned corporations possess. Hence, my forecast is that in 2024 the inflation may be even higher than in 2023 – but at the same time the increase in nominal wages may well offset its effects and allow the real disposable incomes to grow (of course, not by the same amount for all the income groups).

Can the increase of inflation affect social "stability" in Russia and cause public unrest in the "election" year? I would exclude such a chance because the pace of inflation is now far too low to be considered a game-changer – it should increase to at least 25-30% per annum to become a "political" phenomenon. Moreover, the Russian people most often react to economic trends or actions that target some social groups, while inflation, at least in theory, affects everybody. Hence, I expect that Russians will tolerate the current problems, allowing the government to pursue its policies unchanged.

*Dr. Vladislav Inozemtsev is the MEMRI Russian Media Studies Project Special Advisor, and Founder and Director of the Moscow-based Center for Post-Industrial Studies.


[1], November 17, 2023.

[2], November 24, 2023.


[4], November 21, 2023.

[5], 2022;, April 4, 2022.

[6], July 10, 2023.

[7], September 23, 2022.

[8], January 25, 2023.


[10] Yровень-инфляции.рф/%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%86%D1%8B-%D0%B8%D0%BD%D1%84%D0%BB%D1%8F%D1%86%D0%B8%D0%B8

[11]; Yровень-инфляции.рф/%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%86%D1%8B-%D0%B8%D0%BD%D1%84%D0%BB%D1%8F%D1%86%D0%B8%D0%B8

[12] Yровень-инфляции.рф/%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%86%D1%8B-%D0%B8%D0%BD%D1%84%D0%BB%D1%8F%D1%86%D0%B8%D0%B8


[14] Yровень-инфляции.рф/%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%86%D1%8B-%D0%B8%D0%BD%D1%84%D0%BB%D1%8F%D1%86%D0%B8%D0%B8;

[15], February 28, 2022.


[17], October 11, 2023.


[19], December 1, 2023.

[20], July 19, 2023.

[21] September 7, 2023.

[22] Yровень-инфляции.рф/%D1%82%D0%B0%D0%B1%D0%BB%D0%B8%D1%86%D1%8B-%D0%B8%D0%BD%D1%84%D0%BB%D1%8F%D1%86%D0%B8%D0%B8

[23], November 17, 2023.

[24], January 31, 2023;

[25], October 27, 2023.

[26], September 22, 2023.



[29], November 7, 2023.

[30], May 25, 2022.

[31], November 27, 2023.

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