Why Inflation in Russia Has Global Significance

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

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

Definition and Measurement of Inflation

Inflation in Simple Terms

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

A simple example: in November 2024, a liter of milk cost 90 rubles, and by November 2025, it was roughly 97 rubles. It’s not just the price of milk that has risen; almost all goods and services have increased in price simultaneously.

Economists distinguish between "good" and "bad" inflation. Moderate inflation of 2-3% per year is typically seen as healthy for the economy because it motivates people and companies to invest rather than hoard cash, 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 retirees living on fixed incomes and entrepreneurs who cannot quickly adjust the prices of 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 the prices of a set of goods and services purchased by a typical Russian family change over time.

This consumer basket includes food (bread, milk, meat, vegetables, oil), non-food items (clothing, household goods, medicines), and services (housing, utilities, transportation, healthcare, education). It is important to understand that the basket is weighted according to people's actual expenditures. About 38% of a typical family's expenses go to food, 30% to non-food items, and 32% to services.

The structure of the basket is critical. If the price of bread rises by 10% while clothing increases by 2%, the overall inflation will fall somewhere in between but closer to 10% because bread is purchased much more frequently. This explains why people feel inflation so acutely—they see rising prices for food each time they go to the store.

Three Ways to Measure Inflation

The first method is to look at prices over the month: in November 2025, prices increased by 0.42% for the month. This is a modest monthly increase, but it adds up over the year. The second method is to examine how much prices have grown since the beginning of the year: by November, prices had risen by 5.26% over eleven months. The third method is to compare prices with the same period last year: these 6.6% show how much more expensive goods are in November 2025 compared to November 2024.

Core vs. Total Inflation

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

Why Inflation in Russia Remains Elevated

To understand why prices are rising, one must 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 behind Russian inflation in 2025 is the expansion of the money supply. The money aggregate M2, which includes cash and deposits in banks, grew by approximately 20.1% year-on-year. In comparison, nominal GDP is only growing by 7-10%. This means that there is significantly more money circulating in the economy than the volume of goods and services being produced. When there is more money and not an equal increase in goods, prices rise—this is basic economics.

Where Did All This Extra Money Come From?

Firstly, it stems from government spending on military needs. Defense expenditures reached approximately 6% of GDP in 2025. This is a staggering amount—tens of trillions of rubles annually. When the government spends this money, it ends up in the pockets of defense contractors, military personnel, and workers in the defense industry, who promptly spend it on food, clothing, and housing. This creates an initial impulse in demand. However, production of civilian goods does not grow proportionally—resources are understandably being redirected towards defense production.

Secondly, the government has been issuing loans at lower rates to various sectors of the economy. Approximately one-sixth of all new credit has been issued at government-subsidized rates, significantly lower than market rates. When companies can borrow cheaply, they tend to do so and spend quickly on expansion, hiring workers, and purchasing equipment. All of this increases demand and puts pressure on prices.

Thirdly, in early 2024-2025, while the Central Bank raised rates, it did not aggressively curb the money supply as inflation demanded. This was a policy mistake: it is possible to raise a rate, but if the money supply is not reduced concurrently, the effect will be limited. Only by the end of 2025 did the policy genuinely tighten.

Real Causes: Rising Production Costs

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

Fuel and Energy: A Critical Situation

Fuel and energy prices have surged extraordinarily. From the beginning of 2025 to October, motor fuel prices skyrocketed by 116%, while diesel prices rose by 70%. The reason is the strikes against Russian refineries. When fuel prices increase by half, it affects everything. Transportation costs to deliver goods to stores rise. Heating apartments becomes more expensive. Electricity costs increase, as part of it is generated in thermal power stations that burn oil and gas. Contractors hauling construction materials pay more for fuel and charge more for delivery. This wave subsequently reflects in the prices of everything.

The Weak Ruble and Imported Inflation

The situation with the ruble is also complex. The national currency has weakened sharply several times throughout the year for various reasons. When the ruble weakens against the dollar or euro, imported goods become more expensive. For instance, if a product cost 100 dollars at an exchange rate of 100 rubles per dollar (totaling 10,000 rubles), then at an exchange rate of 110 rubles per dollar, the same product would cost 11,000 rubles.

Russia actively imports machines, electronics, medicines, chemicals, and equipment. All of these have risen in price due to the ruble's depreciation. Estimates suggest that currency exchange rate changes account for 30-50% of inflation in Russia, depending on the period. Specific examples illustrate the scale of the problem: a smartphone that cost 30,000 rubles at an exchange rate of 1:100 now costs 33,000 rubles at an exchange rate of 1:110. Cars imported through official channels have risen by 15-25%. Medicines of Western production have become accessible only to affluent Russians.

Supply Shortages

Furthermore, there is simply a lack of supply of goods. Fruits and vegetables saw unusually rapid price increases in the summer and autumn of 2025. This is a temporary factor—a seasonal fluctuation—but it contributed approximately 0.5-1 percentage points to overall inflation. In some production sectors, companies operate at full capacity and cannot physically increase output, so they respond by raising their prices.

Which Goods Are Seeing the Highest Price Increases

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

Food: The Most Critical Area

For Russian families, food prices are the primary concern. If wages rise by 5% while bread, milk, and meat increase by 8-10%, the family effectively becomes poorer in real terms. In November 2025, food prices rose by 7.5% year on year, down from 9.3% in October but still surpassing the overall inflation rate.

Bread and cereal products increased by 10-12%. The reasons are complex: concerns about harvests, logistics costs, and government price supports. Dairy products—such as butter, milk, cottage cheese, and cheese—increased by 8-10% due to rising animal feed costs and milk delivery services. Poultry and beef prices rose by 6-8%, constrained by herd sizes and feed prices. Vegetables and fruits are the most volatile category. In autumn 2025, fresh vegetables experienced price increases of 15-20% month over month, which was unusually intense.

Why the Rise in Food Prices Hurts So Much

Why is this so painful? Because for low-income families, food accounts for 50% of all expenses. If you earn 30,000 rubles per month and spend 15,000 on food, and food prices rise by 7.5%, then you will now need to spend approximately 16,125 rubles on food. You cannot maintain the same standard of living. A family of three that used to buy three kilograms of beef per month can now only afford two kilograms. Consumption volume drops, and quality of life declines.

Utilities: The Annual Shock in July

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

This has a tangible impact. If a person pays 4,000 rubles a month for housing and utilities, after the July indexation, this bill could rise by 450-550 rubles. This is not a large amount for wealthy individuals, but for a family earning 50,000 rubles, it constitutes 1% of the monthly budget. And millions of such families exist. The rising utility costs hit hardest those elderly individuals who cannot move to cheaper housing and are forced to pay increasing bills.

The Mechanism Behind Tariff Increases

Water supply, electricity supply, gas supply, and property management companies raised their prices because their own costs increased: fuel for thermal power stations, repair equipment, and workers' wages all rose simultaneously.

Non-Food Goods: Relative Stabilization

Interestingly, non-food goods (clothing, furniture, cars, medicines) have risen in price more slowly—by 3.5% in November. Car prices spiked at the beginning of the year but then stabilized. Medicine prices rose modestly compared to other categories—by 0.3%—due to government price controls in this sector. Clothing and textiles, despite rising raw material prices, have increased modestly by about 2-3%.

This indicates that producers in these sectors are more aggressively cutting profits or costs to avoid losing customers. Retailers of clothing, furniture, and electronics know that if they raise prices too significantly, people will simply stop buying.

The Central Bank's Response and Key Rate

Faced with rising inflation, the Central Bank of Russia made 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, credit becomes more expensive for all: businesses, consumers, and other banks.

Consider a simple logic. In January 2024, the rate was 7.5%, and a company could take out a loan for expansion at an approximate rate of 9-10%. At this rate, it was worthwhile to invest. By June 2025, the rate had risen to 21%, and loans for companies cost 22-23%. At such a price of money, most projects become unprofitable. If you have a project that generates a 15% annual profit, you will not finance it with a loan that costs 22%. The outcome: companies simply cease investing.

History of Rate Increases in 2024-2025

The timeline looked as follows. In January 2024, when inflation accelerated, the rate was at 7.5%. The Central Bank quickly realized action was necessary. In March, it was raised to 16%, in September to 19%, and by June 2025, it peaked at 21%. After this, when inflation began to decline more slowly, in October, the rate was reduced for the first time to 16.5%.

What is the Cost of This Fight

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

The impact on inflation was evident—it began to decline. From 9.5% at the beginning of the year to 6.6% in November. This is significant progress. However, the price was high: nearly zero economic growth, rising unemployment, and declining real incomes. This is the classic choice between inflation and unemployment that economists often discuss.

Why the Rate Works More Slowly than Desired

However, the economic reality is far more complex than the theory suggests. Yes, high rates reduce inflation, but with a significant lag. A business that has already begun a new project will not abruptly halt it simply because rates rose in March. It will complete the project, spend money, hire people, and pay them salaries. These salaries enter the economy for several more months.

Additionally, the government itself was granting cheap loans to businesses, partially neutralizing the effect of the high rate. Lastly, the very presence of inflationary expectations complicates matters. If people expect inflation to be at 12.6%, then even a rate of 16.5% only represents a real rate of 3.9%.

How Inflation Affects the Lives of Ordinary People

Behind the inflation figures lies tangible pain: people work longer to buy the same items, retirees are eating worse, and young families are postponing having children.

Real Incomes Decline Despite Wage Increases

The nominal salary in Russia increased by about 5% in 2025. That sounds good. But inflation was averaging 7-8%. This means real incomes—the amount of goods and services a person can purchase—actually fell by 2-3%. A person earns more but can buy less.

This creates a strange and painful sensation. A person sees their salary increase, celebrates, and then realizes that life has not become easier—perhaps even harder. People are counting their money more carefully, budgeting more tightly, and postponing purchases.

Retirees Are Losing More

Fixed-income retirees are the primary victims of inflation. If a retiree received 20,000 rubles per month in November 2024, they would need 21,400 rubles in November 2025 to maintain the same standard of living. However, pensions are indexed once a year, usually in April or May, and the pace of indexing often lags behind inflation. The result: real incomes for retirees are declining.

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

Households Stop Spending

When prices rise and the future is uncertain, people change their behavior. Orders at restaurants have fallen. People are traveling less for vacations. They are attending fewer cinemas and theaters. Spending on entertainment, clothing, and books shrinks. Households are focusing on essentials: food, housing, and utility bills.

This shift in consumer demand, from peripheral to essential items, shows how profoundly inflation alters lives. A visit to the theater, buying a book, or a nice dinner in a restaurant—a reconsidered luxury that people can no longer afford.

Inequality Grows

Inflation exacerbates inequality. Poor families, which spend 50% of their income on food, are much more affected by a 7-8% increase in food prices than wealthy families, who spend only 15% of their income on food. The wealthy can protect themselves: they purchase real estate (a hedge against inflation), hold dollars, and invest in businesses. The poor cannot—they keep their savings in cash, which loses value.

How Business and Industry Cope with Inflation

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

Profits Are Squeezed Like Never Before

Imagine a retail store selling clothing. Their suppliers have raised prices by 8%. They want a markup of 40%, as before, but customers say: I won’t buy it if it's higher; it's cheaper at the competitor's. Result: the store is forced to raise prices by 6%, while the supplier raised them by 8%. Margins are squeezed.

Manufacturing companies face a similar, but even more acute problem. A factory producing plastic containers sees that raw materials have increased by 10%, workers' wages have risen by 7%, electricity is becoming more expensive each month, and logistics costs have surged by 15%. Most companies chose a middle ground: to raise prices by 6-7% but simultaneously cut costs elsewhere.

Companies Are Cutting Investments

When loan rates jumped to 20%, many companies simply froze their investment plans. As a result, business investments in Russia fell by approximately 20% in 2025 compared to what could have been expected. This means that factories are aging, equipment is physically wearing out, and not being replaced. This will reduce productivity in the long term.

Three Ways to Survive

Companies employed three main survival strategies. The first is frequent, small price increases. Instead of one large increase of 10%, the company raises prices by 1% each month. People notice this less in terms of price inflation. The second strategy is reducing quality. The size of the product's packaging becomes slightly smaller or the material thinner, while the price remains nearly the same. The third strategy is cutting expenses: companies are trimming marketing budgets, freezing hiring, and avoiding modernization.

The outcome of all three strategies is the same: consumers lose, the quality of life in society slowly degrades, yet companies survive.

Future Predictions and What May Change

Will inflation continue to decrease? Or will it stabilize at current levels? Or may it speed up again?

Central Bank Forecast and Its Assumptions

The Central Bank projects the following figures: inflation for 2025 is expected to be 6.5-7% (almost achieved), for 2026 4-5%, with a full return to the target of 4% occurring only in 2027. This means that the path to normalization will take another two years.

These forecasts are based on several key assumptions. First, they assume that the government will raise VAT from 20% to 22% in 2026. Secondly, the forecast assumes that wages will grow more slowly—by only 3-4% annually, rather than the current 6-8%. If this does not occur, inflation will be higher.

Thirdly, the assumption that public expectations will revert to normal is crucial. As long as people expect inflation to be at 12.6%, they will demand high wages, spend money more quickly, and accelerate 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. First, the risk of rising inflation: new strikes against infrastructure could sharply raise fuel prices by 50-100% over several months.

Secondly, the enhancement of the wage-price spiral: if unions or individual workers refuse to accept 3-4% rises and demand 6-8%, inflation will be higher than forecasted.

Thirdly, a deterioration in the geopolitical situation could trigger panic and a sharp depreciation of the ruble, which would again raise import prices. On the other hand, there are risks on the downside. If investments fall so steeply that demand collapses below expectations, inflation may decrease more quickly.

How to Protect Yourself From Inflation

The forecast may not materialize, so people have a motive to protect themselves from inflation personally.

For Workers and Employees

The simplest strategy is to demand a salary increase above the inflation rate. If inflation is 6.6%, you should demand an increase of at least 7-8%. However, here lies a problem: employers will say that their revenues have also declined, and they cannot afford to pay that much.

The second strategy is to develop personal skills and transition to a job with higher pay. A programmer who learns a new programming language can switch companies and earn 20% more.

The third strategy is to include indexation in the contract. Ensure that the employment contract stipulates that salaries will increase along with the Consumer Price Index. The fourth strategy is income diversification: do not rely solely on one salary but also earn from renting an apartment or selling goods online.

For Retirees and Savers

Retirees cannot demand a salary increase, so they need different strategies. The first is to hold money in foreign currency instead of rubles. Dollars or euros maintain their value better than rubles.

The second is real estate. Apartments and houses typically appreciate with inflation. A retiree who owns a rental apartment receives income protected against inflation.

The third strategy is deposits in banks with high rates. If a bank offers 12-14% on a deposit and inflation is at 6.6%, the real return on the deposit is 5-7%.

The fourth strategy is federal loan bonds (OFZ) and corporate bonds. The fifth strategy is physical assets. Gold, silver, and jewelry typically increase in value alongside inflation and serve as a hedge.

For Investors

For those with money to invest, there are several paths. High-dividend company stocks provide a hedge against inflation. If a company is earning more money due to rising prices, its dividends increase.

Real estate is a classic hedge against inflation worldwide. Commercial property that is rented out provides income and protection.

Commodity futures and exchange-traded funds (ETFs) for oil, gold, and metals are a bet on rising commodity prices that typically correlate with inflation. If inflation is at 10% and the price of gold increases by 15%, investors are protected.