(Bloomberg) -- Russian inflation is expected to have accelerated further from the central bank’s goal last month as the invasion of Ukraine continued to drive up prices for nearly all goods and services.
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Annual price growth at the end of 2024 likely reached 9.8%, accelerating in December from 8.9% a month earlier despite historically high interest rates, according to a median estimate of 11 economists surveyed by Bloomberg. That would make it the fifth consecutive year that the central bank missed its target of 4%.
A plunge in the ruble of more than 10% on the back of new US sanctions and a surge in consumer demand meant that even high borrowing costs were unable to prevent inflation from accelerating late last year, said Vladimir Chernov, an analyst at the Freedom Finance Global brokerage.
Russia’s economy is at capacity working to meet the needs of the Kremlin’s military machine and consumer demand that’s boomed due to massive government spending and increasing wages amid competition for scarce workers. Restrictions on imports from sanctions imposed in the wake of the February 2022 invasion have pushed up prices on everything from food and fuel to holiday packages and cars.
Since the beginning of the year, potatoes have almost doubled in price, onions have grown one-and-half times more expensive and butter has risen almost 40%, according to data as of Dec. 23. Gasoline is up 20% at the pump.
Governor Elvira Nabiullina has compared inflation in the economy to a sick person running a high temperature, and warned such overheated growth isn’t sustainable.
The central bank raised its key interest rate in 2024 by a total of 500 basis points, winding up at a record-high 21%, as it attempted to limit growth in lending and cool demand. The tight policy provoked a surge of criticism from the business community over concerns that the cost of borrowing was starting to force firms to scale back production and investment plans while increasing the risk that several sectors could face a wave bankruptcies.
Meanwhile, prices have continued to increase even as the economy has started to slow.
Bloomberg Economics expects consumer prices rose by 1.6% from last month and 9.8% annually in December.
What Bloomberg Economics Says...
The slide in the ruble and higher inflation expectations signal that the outlook for the first quarter is not getting brighter.
The weaker ruble and only a gradual cooling of consumer demand will prompt the central bank to revise its inflation projections for 2025 from 4.5%-5.0% to 5%-6% over the course of the year.