Why Inflation in Russia Has Global Significance

When prices in a country's economy begin to rise, it creates a ripple effect that impacts both individual households and multinational corporations. Russia, with the eleventh-largest economy in the world and significant influence over global energy and commodity markets, faces a particularly complex inflationary situation in 2025.

Understanding the causes and mechanisms of inflation in Russia is not merely an academic exercise. It affects global prices for energy resources, the energy security of the international community, and strategic decisions made by multinational corporations. When the price of a barrel of oil reflects a Russian premium due to supply concerns, it impacts fuel stations from London to Singapore.

Defining and Measuring Inflation

Inflation in Simple Terms

Inflation is the process whereby the prices of goods and services in the economy rise, and your money loses purchasing power. If inflation is at 6.6%, it means that something that cost 100 rubles a year ago now costs approximately 106.6 rubles.

A simple example: in November 2024, a litre of milk cost 90 rubles, but by November 2025, it costs about 97 rubles. It's not that just milk has become more expensive; virtually all goods and services have simultaneously increased in price.

Economists distinguish between "good" and "bad" inflation. Moderate inflation of 2-3% per year is generally considered healthy for the economy because it encourages people and companies to invest rather than simply hoard money, start businesses, and create jobs. However, when inflation exceeds 6-7%, it begins to seriously harm real incomes and makes long-term planning impossible, especially for pensioners living on fixed incomes and entrepreneurs who cannot quickly adjust prices for their goods.

How Inflation is Measured in Russia

Official inflation measurement in Russia is conducted by the Federal State Statistics Service — Rosstat. They calculate inflation through the so-called Consumer Price Index, which tracks how prices change for a set of goods and services purchased by a typical Russian family.

This consumer basket includes food products (bread, milk, meat, vegetables, oils), non-food goods (clothing, household goods, medicines), and services (housing, utilities, transport, healthcare, education). It is important to understand that the basket is weighted according to real expenditures of the people. Approximately 38% of a typical family's expenses are on food, 30% on non-food goods, and 32% on services.

The structure of the basket is critical. If bread prices increase by 10% while clothing rises by 2%, overall inflation will be somewhere between the two, but closer to 10%, because bread is purchased much more frequently. This explains why people feel inflation acutely — they notice rising prices for food every time they go shopping.

Three Ways to Measure Inflation

The first way is to look at prices over the month: in November 2025, prices increased by 0.42% month-on-month. This is a modest monthly increase, but it accumulates over the year. The second method is to observe how prices have increased since the beginning of the year: as of November, prices increased by 5.26% over eleven months. The third way is to compare prices to the same period last year: these 6.6% show how much more expensive goods are in November 2025 compared to November 2024.

Core and Overall Inflation

There is also a distinction between core inflation and overall inflation. Core inflation excludes the most volatile categories — food and fuel. In November, core inflation was 6.12%, slightly lower than the overall inflation of 6.6%. This indicates that price increases are primarily due to temporary factors in the food and fuel sectors rather than entrenched inflation within the economy.

Why Inflation in Russia Remains Elevated

To understand why prices are rising, it is essential to examine both monetary factors (how much money is circulating in the economy) and real factors (production costs, supply constraints, external shocks).

Excess Money in the Economy

The most fundamental factor of Russian inflation in 2025 is the expansion of the money supply. The monetary aggregate M2, which includes cash and bank deposits, grew by approximately 20.1% year-on-year. In comparison, nominal GDP is only growing by 7-10%. This means that significantly more money is circulating in the economy than the volume of goods and services produced. When there is more money but not more goods, prices rise — this is basic economics.

Where Did All This Extra Money Come From?

Firstly, from government spending on military needs. Defence spending reached about 6% of GDP in 2025. This is a staggering amount — tens of trillions of rubles annually. When the government spends this money, it goes into the pockets of defence contractors, military personnel, and workers in the defense industry, who immediately spend it on food, clothing, and housing. This creates primary demand-pull inflation. Meanwhile, civilian production does not grow proportionally — for understandable reasons, resources are being redirected towards defense production.

Secondly, the government has been granting loans at reduced rates to various sectors of the economy. Approximately one-sixth of all new loans were issued at state-subsidised rates, which are significantly below market rates. When a company can obtain a loan cheaply, it takes it and quickly spends it on expanding production, hiring employees, and purchasing equipment. All of this increases demand and puts upward pressure on prices.

Thirdly, at the beginning of the 2024-2025 period, despite raising rates, the Central Bank did not aggressively reduce the money supply as required by inflation. This was a policy error: while it is possible to raise the rate, if the money supply is not reduced at the same time, the effect will be limited. Only by the end of 2025 did policy genuinely tighten.

Real Reasons: Rising Production Costs

Behind the simple printing of money lie real reasons for rising prices — the increasing costs of everything needed for the production of goods. Wages are rising rapidly because the labour market in Russia is very tight. Companies are competing against one another for workers and are forced to raise wages by 6-8% annually. But this creates a dilemma: as wages rise, people have more money to spend — demand increases further, prices rise even more, and companies demand even higher wages. This creates a spiral that is difficult to escape.

Fuel and Energy: A Critical Situation

Fuel and energy prices have risen dramatically. From the beginning of 2025 to October, prices for motor fuel skyrocketed by 116%, while diesel increased by 70%. The reason is the strikes on Russian oil refineries. When fuel prices rise by half, it affects everything. The cost of transporting goods to stores increases. Heating apartments costs more. Electricity costs more because part of it is generated at thermal power plants burning oil and gas. Contractors transporting building materials pay more for fuel and charge more for delivery. This wave subsequently reflects in prices for everything.

Weakening Rouble and Imported Inflation

The situation with the rouble is also complex. The national currency has weakened sharply several times during the year for various reasons. When the rouble weakens against the dollar or euro, imported goods become more expensive. If previously a product cost 100 dollars and the exchange rate was 100 roubles to the dollar (totaling 10,000 roubles), with an exchange rate of 110 roubles to the dollar, that same product will now cost 11,000 roubles.

Russia actively imports machinery, electronics, medicines, chemicals, and equipment. All of these have risen in price due to the weakening rouble. Estimates suggest that currency exchange changes explain 30-50% of inflation in Russia, depending on the period. Specific examples demonstrate the scale of the problem: a smartphone that cost 30,000 roubles at an exchange rate of 1:100 now costs 33,000 roubles at an exchange rate of 1:110. Cars imported through official channels have become 15-25% more expensive. Medicines from Western manufacturers are now only accessible to wealthier Russians.

Shortage of Product Supply

Additionally, there is a straightforward shortage of goods in supply. Fruits and vegetables saw unusually rapid price increases during the summer and autumn of 2025. This is a temporary factor — a seasonal fluctuation, but it added approximately 0.5-1 percentage points to overall inflation. In certain production sectors, companies are operating at full capacity and physically cannot increase output, so they respond by raising prices.

Which Goods Are Seeing the Largest Price Increases

Inflation is not just an abstract number of 6.6%. It is distributed extremely unevenly across the economy. Some goods increase by 2%, while others increase by 15%. This is very important because families do not consume an average basket — they buy what they need.

Food: The Most Pressing Issue

For Russian families, the prices of food are the primary concern. If wages have risen by 5%, but bread, milk, and meat have increased by 8-10%, the family becomes poorer in real terms. In November 2025, prices for food products increased by 7.5% year-on-year, down from 9.3% in October, but still outpacing the overall inflation rate.

Bread and cereal products increased by 10-12%. The reasons are complex, including concerns about harvests, logistics costs, and government price support. Dairy products — butter, milk, cottage cheese, cheese — have risen by 8-10% due to rising feed prices and costs of milk delivery. Poultry and beef rose by 6-8%, constrained by herd sizes and feed prices. Vegetables and fruits are the most volatile category. In autumn 2025, fresh vegetables saw price hikes of 15-20% month-on-month, which was unusually intensive.

Why the Rise in Food Prices is So Painful

Why is this so painful? Because for low-income families, food accounts for 50% of all expenses. If you earn 30,000 roubles a month and spend 15,000 on food, and food prices have risen by 7.5%, you now have to spend approximately 16,125 roubles on food. You can no longer achieve the same quality of life. A family of three that used to purchase three kilograms of beef per month can now only afford two kilograms. Consumption volume decreases, and life becomes less dignified.

Utilities: The Annual Shock in July

Every July in Russia, there is an annual tariff indexing for housing and utilities. This is government policy — utility companies raise tariffs once a year. In the summer of 2025, this indexing was particularly painful: housing and utility services (electricity, gas, heating, water supply, garbage collection) overall increased by 11-12%.

This has a clear expression. If a person pays 4,000 roubles a month for rent and utilities, after the July indexing, that bill may rise by 450-550 roubles. This is not much for wealthier people, but for a family with an income of 50,000 roubles, this accounts for 1% of the monthly budget. And millions of such families exist. The rise in utility costs hit hardest among the elderly, who cannot move to cheaper housing and are forced to pay rising bills.

The Mechanism of Tariff Increases

Water, electricity, gas, and building management companies raised their prices because their own costs rose: fuel for power plants, repair equipment, and workers' wages. All of these have become more expensive at the same time.

Non-Food Goods: Relative Stabilization

Interestingly, non-food goods (clothing, furniture, cars, medicines) increased at a slower rate of 3.5% in November. Car prices surged at the beginning of the year but then stabilized. Medicine prices rose more modestly than other categories, at 0.3%, because the government tries to control prices in this sector. Clothing and textiles, despite rising raw material prices, increased moderately, by about 2-3%.

This indicates that producers in these sectors are more intensely cutting profits or costs to retain customers. Retailers of clothes, furniture, and electronics are aware that if they raise prices too much, people will simply stop buying.

The Central Bank's Response and the Key Rate

Faced with rising inflation, the Central Bank of Russia undertook a dramatic attempt to tighten monetary policy — the most aggressive in the last decade.

How the Key Rate Works

The Central Bank's key rate is the interest rate at which commercial banks borrow money from the Central Bank. When the Central Bank raises this rate, loans become more expensive for everyone: businesses, consumers, and other banks.

Imagine a simple logic. In January 2024, the rate was 7.5%, and a company could take a loan to expand production at a rate of approximately 9-10%. At such a rate, it was worth investing. By June 2025, the rate had risen to 21%, and loans for companies cost 22-23%. At such a cost of money, most projects become unprofitable. If you have a project that brings in 15% profit per year, you won't finance it with a loan that costs 22%. The result: companies simply stop investing.

The Rate Hike History from 2024 to 2025

The history was as follows. In January 2024, when inflation accelerated, the rate stood at 7.5%. The Central Bank quickly realised action was required. In March, it was raised to 16%, in September to 19%, and by June 2025, it peaked at 21%. After this point, as inflation began to decrease more slowly, the rate was first lowered to 16.5% in October.

What Is the Cost of This Fight?

The effect was powerful but painful. By the third quarter of 2025, economic growth had dropped to 0.6% year-on-year. Business investment plummeted by 15-20%. Unemployment began to rise. Consumers, seeing high-interest rates, started spending money more cautiously. They cancelled restaurant orders, postponed vacations, and cut back on entertainment.

The results for inflation were clear — it began to decline, from 9.5% at the start of the year to 6.6% by November. This is significant progress. However, the cost was high: nearly zero economic growth, rising unemployment, and falling real income. This is the classic trade-off between inflation and unemployment discussed by economists.

Why the Rate Works More Slowly Than Desired

However, economic reality is much more complex than theory. Yes, high rates reduce inflation, but with a substantial lag. A business that has already commenced a new project at the beginning of the year does not simply halt it because the rate rose in March. It will finish the project, spend money, hire people, and pay them wages. These wages flow into the economy for several months afterwards.

Additionally, the government itself was doling out cheap loans to businesses, which partially neutralised the effect of the high rate. Finally, the presence of inflation expectations complicates the task. If people expect 12.6% inflation, even a rate of 16.5% in real terms equates to only 3.9%.

How Inflation Affects Ordinary People's Lives

Behind the inflation figures lies concrete pain: people work longer to buy the same things, pensioners eat worse, and young families postpone having children.

Real Incomes Decline Despite Wage Increases

Nominal wages in Russia in 2025 rose by about 5%. This sounds good. But inflation was on average 7-8%. This means that real income — the amount of goods and services a person can buy — actually fell by 2-3%. A person earns more money but can purchase less.

This creates a strange and painful sensation. A person sees that their salary has increased, celebrates this, and then realises that life has not become easier — and perhaps has even become harder. People are becoming more attentive to their money, budgeting more tightly, and postponing purchases.

Pensioners Are Losing More

Pensioners on fixed incomes are the primary victims of inflation. If a pensioner received 20,000 rubles a month in November 2024, they would need 21,400 rubles in November 2025 to maintain their previous standard of living. However, pensions are indexed once a year, typically in April or May, and the rate of indexing often lags behind the inflation rate. The outcome: real income for pensioners declines.

Savings held in rubles lose purchasing power. If you have 1 million rubles in cash, and inflation is 6.6%, you are losing 66,000 rubles a year. Pensioners often choose a strategy of "capital consumption," meaning they spend their savings faster than they planned.

Households Cut Back on Spending

When prices are rising and the future is uncertain, people change their behaviour. Orders in restaurants have fallen. People are taking fewer vacations. Spending on entertainment, clothing, and books has decreased. People are focusing on essentials: food, housing, and utilities.

This shift in consumer demand from peripheral goods to basics illustrates how profoundly inflation alters lives. A trip to the theatre, buying a book, a nice dinner at a restaurant — all become luxuries that people cannot afford.

Inequality is Rising

Inflation exacerbates inequality. Poor families, who spend 50% of their incomes on food, suffer from a 7-8% price rise in food much more than wealthy families, who spend only 15% of their incomes. The wealthy can protect themselves: they buy real estate (protection against inflation), hold dollars, and invest in business. The poor cannot; they hold cash that is losing value.

How Businesses and Industries Cope with Inflation

If inflation is pain and loss for households, for companies it is a puzzle on how to survive.

Profits are Squeezed Like Never Before

Imagine a retail store selling clothing. Its suppliers have raised prices by 8%. It wants a markup of 40%, as before, but buyers are saying: I won’t pay more, the competitor sells cheaper. The result: the store has to raise prices by 6%, but suppliers increased by 8%. Margins are being squeezed.

Manufacturing companies face the same problem, but even more acutely. A factory producing plastic containers sees that raw materials have increased by 10%, worker wages have risen by 7%, electricity prices are going up monthly, and logistics have become 15% more expensive. Most companies have chosen a middle ground: raise prices by 6-7% but simultaneously cut costs elsewhere.

Companies Cut Investments

As the loan rates jumped to 20%, many companies simply froze their investment plans. The result is that business investments in Russia fell by approximately 20% in 2025 compared to expected levels. This means that factories are becoming older, equipment is wearing out and not being replaced. This will reduce productivity in the long term.

Three Ways to Survive

Companies employed three primary survival strategies. The first is frequent, small price increases. Instead of a single significant increase of 10%, the company raises prices by 1% each month. People notice such inflation less. The second method is to reduce quality. Product packaging becomes slightly smaller or thinner, but the price remains nearly the same. The third method is cost-cutting: companies are slashing marketing budgets, freezing hiring, and avoiding modernisation.

The result of all three strategies is the same: consumers lose, quality of life in society gradually degrades, but companies survive.

Future Predictions and What May Change

Will inflation continue to decrease? Or will it stabilise at its current level? Or may it accelerate again?

The Central Bank's Forecast and Assumptions

The Central Bank projects the following figures: inflation for 2025 will be 6.5-7% (practically achieved), for 2026 — 4-5%, and a full return to the target 4% will occur only in 2027. This means that the path to normalisation will take another two years.

These forecasts are based on several key assumptions. Firstly, they assume that the government will increase VAT from 20% to 22% in 2026. Secondly, the forecast assumes that salaries will grow more slowly — only 3-4% per year, instead of 6-8%, as is currently the case. If this does not happen, inflation will be higher.

Thirdly, it's critical that expectations of the population return to normal. As long as people expect 12.6% inflation, they demand higher wages and spend money more quickly, accelerating inflation themselves. If the Central Bank can convince people that inflation will be 4%, they will behave differently.

What Could Go Wrong

Economists highlight several risks. Firstly, the risk of inflation rising again: new strikes against infrastructure could cause fuel prices to surge by 50-100% in just a few months.

Secondly, the wage-price spiral could intensify: if trade unions or individual workers refuse to accept 3-4% increases and demand 6-8%, inflation will be above forecasts.

Thirdly, a deterioration in the geopolitical situation could lead to panic and a sharp weakening of the rouble, which would again raise prices for imports. On the positive side, there are also downward risks. If investments decline so severely that demand falls below expectations, inflation may decrease faster.

How to Protect Yourself from Inflation

The forecast may not come to fruition, which gives individuals a motive to personally protect themselves against inflation.

For Workers and Employees

The simplest strategy is to demand a salary increase above the inflation level. If inflation is 6.6%, one should demand a raise of at least 7-8%. However, there is a problem: the employer will say their income has also fallen, and they cannot afford to pay that much.

The second strategy is to develop skills and transition to higher-paying jobs. A programmer who learns a new programming language can switch companies and secure a 20% higher salary.

The third strategy is indexation in the contract. It is essential to stipulate in the employment contract that salary will rise in line with the consumer price index. The fourth strategy is to diversify income: not to rely solely on one salary but to gain additional income from renting out an apartment or selling goods online.

For Pensioners and Savers

Pensioners cannot demand salary increases, so they need alternative strategies. The first is to hold money not in roubles but in foreign currency. Dollars or euros tend to retain their value better than roubles.

The second is real estate. Apartments and houses usually appreciate in value with inflation. A pensioner who has an apartment that can be rented out earns income that is protected from inflation.

The third strategy is to utilise bank deposits with high interest rates. If a bank offers 12-14% on a deposit, and inflation is 6.6%, then the real income from that deposit is 5-7%.

The fourth strategy is to consider federal loan bonds (OFZ) and corporate bonds. The fifth strategy is to invest in physical assets. Gold, silver, and jewellery typically increase in value along with inflation and provide insurance.

For Investors

For those with money for investment, there are several paths. High-yield stocks (dividend stocks) provide protection against inflation. If a company earns more money due to rising prices, its dividends increase.

Real estate is a classic protection against inflation in all countries. Commercial property for rent provides income and protection.

Commodity futures and exchange-traded funds (ETFs) for oil, gold, metals — this is a bet on price growth for raw materials, which typically correlates with inflation. If inflation reaches 10%, but the price of gold increases by 15%, the investor is safeguarded.