BarcelonaIn Yekaterinburg, Russia‘s defense industry capital, security cameras recently captured footage of two masked men entering a dairy. One attacked the cash register and the other left with 20 kilos of a greasy substance. It was butter.
The thefts of this food have highlighted the impact of rising inflation on Russia’s war economy, explains the Financial Times. “Your average butter factory would be more than happy to meet demand and work three shifts too. But there aren’t enough people to hire. You can’t fight inflation and a war at the same time,” says an analyst at Carnegie Russia Eurasia Center in Berlin, Alexandra Prokopenko, according to the British newspaper.
Inflation in Russia could reach 8.5% this year, according to estimates by the Russian central bank. The truth is that food prices are increasing faster and faster: butter grew by 26% year-on-year. In some stores, it is already sold in plastic boxes with magnetic locks.
Inflation in Russia will be 8.5% this year, according to estimates from the country’s central bank
Russia’s central bank raised its key interest rate to a record 21 basis points in October, but Putin appears to have no intention of cutting defense spending, set at a record 13.5 billion rubles ( $145 billion) in next year’s budget. “This is a classic case of firing the economy beyond its capacity,” says Elina Ribakova of the Peterson Institute for International Economics, according to the Financial Times.
This level of defense spending has led to a rush to hire in the sector, where many factories work three shifts. And now, unemployment is at an all-time low (2.4%), which has led to an increase in wages to attract workers and makes it almost impossible to increase the production of goods and services without causing large price increases.
More demand than production
Central bank governor Elvira Nabiullina told Parliament in late October that persistently high inflation was a sign “that demand has significantly outstripped the production capacity of the economy.” “In some sectors there is almost no idle equipment, not even obsolete machinery,” he said, according to the British newspaper.
The squandering of defense money has come as revenue declines from Russia’s commodity exports, difficulties in converting the ruble and pressure from the United States that limits commodity payments and raises costs on the the supply of everyday items, explains al Financial Times. This has left Russia increasingly dependent on imports at a time when the country effectively has no way to limit its costs.
In the last seven years salaries in IT, thinking industry and construction have grown by 170%
In fact, in the past seven years, wages in IT, heavy industry and construction have grown by 170%, according to Russian state statistics provider Rosstat. In education and municipal services, on the other hand, they have increased between 10% and 20%.
But this policy of increasing the price of money has already met with strong detractors: the chief executive of Russian state arms conglomerate Rostec, Sergei Chemezov, said in October that the high cost of capital was a factor which limited his company’s ability to sell weapons abroad.
“What will happen if everyone suddenly buys machines with cheap credit? There are not enough hands to make more,” added Nabiullina, according to the British newspaper.
