Published On: Thu, Jul 27th, 2023

Putin in big trouble as spectre of hyperinflation hangs over Russia as economy crumbles | World | News

A significant drop in the value of the rouble has left Vladimir Putin facing an economic disaster with inflation leading to increased import costs.

Meanwhile, a tight labour market causing significant wage growth and expanded government spending is driving up demand.

At the same time, Western sanctions are restricting supply, contributing to mounting pressure on Russia‘s economic landscape.

Following Russia‘s full-scale invasion of Ukraine, inflation rose sharply but then fell.

The rate of consumer price growth in April was 2.3 per cent, around half of the central bank’s goal pace, which is higher than the UK’s rate of 4 per cent.

However, inflation is on the rise once more, with the Consumer Price Index (CPI) reaching 3.3 per cent in June.

Household expenditure was low during the initial phase of lowering inflation due to a variety of variables.

Concurrently, the jump in energy prices contributed to an increase in Russia‘s trade surplus, resulting in a stronger rouble, which in turn reduced the cost of imports.

Liam Peach, senior emerging markets economist at Capital Economics told the Telegraph: “With Russia’s economy now more supply-constrained than at any point since the war started, I think it is only a matter of time before inflation pressures accelerate.”

He added: “If you think back to Russia’s history, inflation really is evil in Russia.

“It is the one thing that policymakers want to beat at all costs.”

Earlier this month, expressed concerns about an escalating “economic crisis” while speaking at a virtual meeting of the Shanghai Cooperation Organization.

According to Putin, there is an increasing risk of a global economic and financial crisis.

He attributed this risk to various factors, including the unchecked accumulation of debts in developed countries, rising social inequality, growing poverty on a global scale.

Putin told the summit: “The risks of a new global economic and financial crisis are rising against the backdrop of uncontrolled accumulation of debts in developed countries, social stratification and growing poverty around the world, deteriorating food and environmental security.

“All these problems, each of which is complex and diverse in its own way, in their totality lead to a noticeable increase in conflict potential.

He added: “Russia feels all this directly itself.”

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