Vladimir Putin’s re-election campaign has prompted a fresh drive by Russian officials to curb inflation as disquiet grows over soaring prices for consumer goods and as technocrats move to rein in a weakening rouble.
The Kremlin is increasingly resorting to ad hoc measures aimed at lessening the burden on ordinary Russians, with Putin trumpeting a return to growth nearly two years after his full-scale invasion of Ukraine prompted Russia’s biggest economic crisis in decades.
Ahead of the president’s expected landslide victory in March, Russia’s inflation-fighting toolkit has included everything from hawkish central bank policy and a pause on exits from the country by western companies to what the Kremlin called “energetic measures” to lower the cost of eggs.
Pressures on consumers were a central feature of Putin’s telethon last Thursday, the first time he had held his usually annual press conference or phone-in since ordering the invasion in 2022 — and, since “eggs” are slang for testicles in Russian, he could not pass up an opportunity for a crude joke.
“I asked the minister of agriculture how his eggs are. He said they were fine. And I replied: ‘Well, our citizens have some problems,’” Putin said, to audible gasps in the studio.
Fielding several complaints on the issue live on air, he apologised for the price of eggs and blamed the government, which he said had “not approved imports in time”.
Within hours, Russia’s agriculture ministry announced it would abolish import taxes on eggs and step up bringing stocks in from “friendly” countries that have not joined western sanctions imposed over the war.
By Monday, the Kremlin was saying Putin’s telethon had had an “accelerating effect” on bringing down egg prices, which are up 43 per cent this year. Central bank data showed egg prices had risen faster in the week to December 18 than a week earlier, however, increasing by more than 4.6 per cent.
“It is obvious that the authorities have tried to paint a picture of growth and prosperity ahead of Putin’s renomination for the upcoming elections,” said Alexandra Prokopenko, a non-resident fellow at the Carnegie Russia Eurasia Center in Berlin.
Record spending on defence and rising prices on energy exports are fuelling GDP growth, which Putin crowed would reach 3.5 per cent this year after a contraction of 2.1 per cent last year.
But Russia’s economy is continuing to overheat as a reliance on imports and restricted access to global markets drive inflation.
As it raised its key interest rate to 16 per cent last week — a higher rate even than in Ukraine — the central bank named western sanctions as a key factor driving inflation that now stands at 7.5 per cent in annual terms.
“External trade and financial constraints . . . complicate logistical chains and financial settlements and weaken demand for Russian exports,” it said.
That has fuelled inflation via the exchange rate: fewer exports mean Russia receives less foreign currency to pay for imports used in food production and other industries.
Putin’s Ukraine campaign has also led to labour shortages as Russia’s army and its weapons factories suck in workers, creating a supply-side bottleneck that is seeing domestic demand outpace Russia’s capacity to produce goods and services.
That means that Russia’s technocrats are fighting a losing battle, said Prokopenko.
“This is the ABC: targeted measures work here and now, but they do not help against inflation and have negative effects in the long term. Any restriction of supply distorts market mechanisms and signals,” she added.
Russia has been scrambling to find ways to tame spiralling inflation since the summer, when the rouble briefly weakened below the psychologically important barrier of Rbs100 to the dollar, and prices soared for essentials such as petrol and durum wheat.
A sharp rise in rates and export bans on some goods failed to stop the trend, prompting Putin to introduce limited capital controls in October.
The effect of capital outflows on the rouble was so strong that Russia quietly paused approvals for western companies looking to leave the country this autumn, said people briefed on the situation.
A string of western companies have sought to offload their Russian arms since the country’s invasion of Ukraine last year and amid the subsequent sanctions imposed by the US and EU.
But in October, the government subcommittee responsible for allowing such owners to sell Russian businesses and transfer the funds abroad stopped issuing exit permits, four people involved in past and ongoing deals told the FT.
The suspension took place at the request of the central bank, said a person involved in the recent exits. It was restored after a month and a half, the people said. Russia’s finance ministry and central bank did not immediately respond to requests for comment.
Alan Kartashkin, partner at the law firm Debevoise & Plimpton, said he was not “aware of any exit approvals issued by the government commission during the informal suspension between the middle of October and end of November”.
Approvals restarted in December, with companies including Japanese multinational tyre manufacturer Bridgestone and brewer AB InBev announcing exits this week.
But the pace of approvals had slowed throughout 2023, said people involved in the exits. The Kyiv School of Economics said 12 foreign companies had left in October and seven in November compared with an average of 14.2 per month earlier in 2023.
A comparatively shallow domestic market in rouble trading means relatively small interventions can cause notable currency moves, said Sofia Donets, a former central bank official and chief economist at Renaissance Capital.
In August, International Paper sold its stake in the Russian Ilim Group to its local partners for $484mn, equivalent to about a half of total foreign exchange trading volume on the Moscow stock exchange per day that month.
The rouble is still down 25 per cent against the dollar in 2023 but has risen to about Rbs90 in recent weeks.
However, on Monday, the central bank said inflation expectations for 2024 had soared to 14.2 per cent, their highest level since the full-scale invasion of Ukraine.
Several industry bodies, including those covering the packaging and household goods sectors, said that prices had risen in double digits from just a month earlier, while artificial Christmas trees are 11.5 per cent more expensive than last year.
Perceived inflation in Russia is higher than the official figure. Households reported inflation of up to 17 per cent — the highest level since October last year — when asked as part of central bank surveys, despite actual inflation being much lower.
The election next year is expected to be a heavily stage-managed event with no real competition for Putin, who is set to extend his rule of 24 years until at least 2030.
But continued price pressures are likely to force his officials to find more unorthodox ways to tame inflation and keep a lid on public resentment, said Konstantin Sonin, economist at the University of Chicago.
“Inflation is the most common cause for citizens’ discontent, hence the increased attention to these measures,” he said.
