Putin's vodka crisis: Rising prices and alarming inflation in Russia

The Russian economy is under significant pressure from high inflation, which President Vladimir Putin called an “alarming signal.” According to the report by Mercury Inflation in Russia is currently 9.5%, while in 2023 it was about 7%. To combat inflation, the central bank raised key interest rates to a record 21%.

From January 1, 2025, Russians can expect a 17% increase in vodka prices. The minimum price for half a liter of vodka increases from 299 rubles to 349 rubles, which corresponds to 2.66 euros to 3.10 euros. This price increase is considered to be artificially caused by the Ministry of Finance and primarily affects citizens, whose average salary is around 800 euros. In addition, food prices rose significantly - butter by 25% and potatoes by almost 95% - which resulted in budget cuts for many families during the Christmas season.

Economic challenges and military spending

How SWP Berlin reports, Russia's military spending is expected to rise significantly in 2025, which has sparked a war boom in parts of the economy. The Deputy State Duma approved the budget for 2025, which provides for a 25% increase in the defense budget to 13.5 trillion rubles (about 130 billion euros). Military spending currently amounts to 7-8% of gross domestic product (GDP).

The government demand stimulus from the war is estimated at 10% of annual GDP (2022-2024). The defense industry has created around 520,000 new jobs since 2023, but is suffering from an acute shortage of skilled workers with 160,000 unfilled positions. Despite the increase in the defense sector, economic growth remained generally stagnant, with high unemployment at 2.4% and inflation standing at 9.7% in October 2024. High-interest loans could lead to corporate bankruptcies and cause financial difficulties for many households.