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Putin's expensive military policy is driving up Russia's inflation!
Russia's economy is facing major challenges: high inflation, rising interest rates and burdensome military spending.
Putin's expensive military policy is driving up Russia's inflation!
The economic situation in Russia is becoming increasingly tense, due to a steadily rising inflation rate and the ongoing financial burdens of the Ukraine war. According to a report by fr.de The inflation rate reached 9.50% in December 2024, after being 8.90% in November. Experts are predicting a further increase, with Liam Peach of Capital Economics expecting inflation to reach 10.50% in early 2025. This development increases concerns about the effectiveness of the Russian Central Bank's measures to combat inflation, which currently remains at a key interest rate of 21%.
The challenges in the Russian economy remain unresolved given the war in Ukraine and the associated military spending. The Kremlin invested around 10 trillion rubles (around $100 billion) in the military in 2024, and high government spending is also planned for 2025. This spending has not only fueled inflation, but is also causing companies, particularly large and medium-sized businesses, to come under economic pressure. Between July and September 2024, there was a late payment rate of 19% for large and medium-sized companies and 25% for small companies.
Key interest rate hike by the central bank
The Russian Central Bank, led by Elvira Nabiullina, has pursued an elastic monetary policy to cushion the negative impact of the Ukraine war and Western sanctions on the domestic economy. Nevertheless, the forecast for inflation in 2024 is raised to 6.5 to 7.0 percent, while a reduction to 4.0 to 4.5 percent is targeted for 2025. The new monetary policy could create further financial challenges for companies, especially if interest rates continue to rise.