Why Inflation in Russia Matters Globally

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

Understanding the causes and mechanisms of inflation in Russia is not just an academic exercise. It affects global energy 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.

Defining and Measuring Inflation

Inflation in Simple Terms

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

A straightforward example: in November 2024, a liter of milk cost 90 rubles, and by November 2025, it rose to about 97 rubles. This isn’t just about milk becoming more expensive; nearly all goods and services have increased in price simultaneously.

Economists distinguish between "good" and "bad" inflation. Moderate inflation of 2-3% annually is generally seen as healthy for the economy as it incentivizes individuals and businesses to invest rather than just hoard money, leading to business creation and job growth. However, when inflation exceeds 6-7%, it starts to significantly harm real incomes and makes long-term planning nearly impossible, particularly for retirees living on fixed incomes and entrepreneurs who cannot quickly adjust prices.

How Inflation is Measured in Russia

The official measurement of inflation 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 basket of goods and services typically purchased by a typical Russian family.

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

This basket structure is critical. If bread rises by 10% and clothing by 2%, the overall inflation will be somewhere in between, but closer to 10% because bread is purchased much more frequently. This explains why people so acutely feel inflation — they see price increases on food every time they go grocery shopping.

Three Ways to Measure Inflation

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

Core and Total Inflation

There’s also a distinction between core inflation and total inflation. Core inflation excludes the most volatile categories — food and fuel. In November, core inflation stood at 6.12%, which is slightly below the total inflation of 6.6%. This suggests that the price increase is primarily related to temporary factors in the food and fuel sectors rather than a deep-rooted inflation within the economy.

Why Inflation in Russia Remains Elevated

To understand why prices are rising, one must examine both monetary factors (the amount of money circulating in the economy) and real factors (production costs, supply constraints, external shocks).

Excess Money in the Economy

The most fundamental factor driving Russian inflation in 2025 is the expansion of the money supply. The money aggregate M2, which includes cash and deposits in banks, has grown by approximately 20.1% year-over-year. In comparison, nominal GDP is only increasing by 7-10%. This means there is much more money in circulation than the growth of the amount of goods and services produced. When there is more money and not more goods, prices rise — this is basic economics.

Where Did All This Extra Money Come From?

Firstly, from government spending on military needs. Defense spending reached about 6% of GDP in 2025. This is a huge amount — tens of trillions of rubles each year. When the government spends this money, it enters the pockets of defense contractors, military personnel, and defense industry workers, who immediately spend it on food, clothing, and housing. This creates an initial spike in demand. However, the production of civilian goods does not grow proportionately — for obvious reasons, resources are being diverted to defense-related production.

Secondly, the government has been providing loans at reduced rates to various sectors of the economy. Approximately one-sixth of all new loans have been issued at subsidized rates, significantly lower than market rates. When a company can obtain a cheap loan, it borrows and spends it quickly on expanding production, hiring workers, and purchasing equipment. All this increases demand and puts upward pressure on prices.

Thirdly, at the beginning of the 2024-2025 period, while the Central Bank did raise rates, it did not aggressively reduce the money supply as inflation required. This was a policy misstep: it's possible to raise rates, but if the money supply isn't curtailed, the effect will be limited. Only by the end of 2025 did the policy truly tighten.

Real Reasons: Rising Production Costs

Behind the simple act of printing money are real reasons for rising prices — increases in the cost of everything needed to produce goods. Wages are rising rapidly because the labor market in Russia is very tight. Companies are competing with each other for workers and are therefore forced to raise wages by 6-8% a year. But this creates a dilemma: as wages rise, people receive more money, spend it — demand increases even further, prices climb higher, and companies demand even higher wages. This creates a spiral that is difficult to escape from.

Fuel and Energy: A Critical Situation

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

Weakening Ruble and Imported Inflation

The situation with the ruble is also complicated. The national currency has weakened sharply several times over the year due to various reasons. When the ruble weakens against the dollar or euro, imported goods become more expensive. If a product previously cost 100 dollars and the exchange rate was 100 rubles per dollar (a total of 10,000 rubles), at an exchange rate of 110 rubles per dollar, that same product will now cost 11,000 rubles.

Russia actively imports machinery, electronics, pharmaceuticals, chemicals, and equipment. All of this has become more expensive due to the weakening ruble. Estimates suggest that changes in exchange rates 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 increased in price by 15-25%. Western-made medications have become accessible only to wealthy Russians.

Supply Shortages of Goods

Additionally, there is simply a shortage of goods available. Fruits and vegetables experienced unusually rapid price increases during the summer and fall of 2025. This is a temporary factor — seasonal fluctuations, but it added about 0.5-1 percentage point to overall inflation. In some manufacturing sectors, companies are operating at full capacity and physically cannot increase output, so they respond by raising prices.

Which Goods Are Seeing the Biggest Price Increases

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

Food Prices: The Most Critical Concern

For Russian families, food prices 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, food prices rose by 7.5% year-on-year, down from 9.3% in October, but still exceeding the overall inflation rate.

Bread and cereal products increased by 10-12%. The reasons are complex: these include concerns over harvests, logistics costs, and government price supports. Dairy products — butter, milk, cottage cheese, cheese — saw increases of 8-10% due to rising feed costs for livestock and delivery services. Poultry and beef have grown by 6-8%, driven by limited livestock numbers and feed prices. Fruits and vegetables are the most volatile category. In the fall of 2025, fresh vegetables saw price increases of 15-20% month after month, which was unusually intense.

Why Food Price Increases Are So Painful

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

Utilities: Annual Shock in July

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

This has a tangible expression. If someone pays 4,000 rubles a month for their apartment and utilities, after the July adjustment this bill could rise by 450-550 rubles. This is not a huge amount for wealthy individuals, but for a family with an income of 50,000 rubles, it represents 1% of their monthly budget. And there are millions of such families. The rise in utility costs hits hardest on elderly people who cannot move to cheaper housing and are forced to pay rising bills.

The Mechanism Behind Rising Tariffs

Water, electricity, gas, and building management companies have raised prices because their own costs have increased: fuel for thermal power stations, maintenance equipment, and worker wages have all risen simultaneously.

Non-Food Goods: Relative Stabilization

Interestingly, non-food goods (clothing, furniture, cars, medications) have increased in price more slowly — by 3.5% in November. Car prices surged early in the year but then stabilized. Medications increased less than other categories — by 0.3% — because the government is trying to control prices in this sector. Clothing and textiles, despite rising raw material prices, increased moderately, by about 2-3%.

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

The Central Bank's Response and Key Interest Rate

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

How the Key Interest Rate Works

The key rate of the Central Bank 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 simple logic. In January 2024, the rate was 7.5%, and a company could take out a loan for expansion at an interest rate of approximately 9-10%. At that rate, it was viable to invest. By June 2025, the rate rose to 21%, and loans for companies cost 22-23%. At such a price of money, most projects become unfeasible. If you have a project that generates a profit of 15% annually, you would not finance it with a loan that costs 22%. The result: companies simply stop investing.

History of Rate Increases from 2024-2025

The timeline was as follows. In January 2024, when inflation accelerated, the rate was at 7.5%. The Central Bank quickly realized action was required. In March it rose to 16%, in September to 19%, and in June 2025 it peaked at 21%. After that, when inflation started to decrease more slowly, in October the rate was first reduced to 16.5%.

What is the Cost of This Fight

The effect has been powerful but painful. By the third quarter of 2025, economic growth fell to 0.6% annually. Business investments plummeted by 15-20%. Unemployment began to rise. Consumers, seeing high interest rates, started to spend money more cautiously. They canceled restaurant orders, postponed vacations, reduced spending on entertainment.

The resulting impact on inflation was clear — it began to decrease. From 9.5% at the beginning of the year to 6.6% by November. This is significant progress. However, the cost has been high: nearly zero economic growth, rising unemployment, and declining real incomes. This is the classic trade-off between inflation and unemployment that economists discuss.

Why the Rate Works Slower Than Desired

However, the economic reality is far more complex than theory suggests. Yes, high rates reduce inflation, but with significant lag. A business that started a new project at the beginning of the year does not just stop it because rates rose in March. It completes the project, spends money, hires people, pays them wages. These wages enter the economy for several months afterwards.

Moreover, the state itself was distributing cheap loans to businesses, which partially neutralized the effect of high rates. Finally, the very presence of inflation expectations complicates the task. If people expect inflation at 12.6%, even a rate of 16.5% in real terms amounts to only 3.9%.

How Inflation Affects the Lives of Ordinary People

Behind inflation figures lies specific pain: people work longer to buy the same goods, retirees eat worse, and young families delay having children.

Real Incomes Decline Despite Wage Increases

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

This creates a strange and painful perception. A person sees their salary increase, celebrates it, and then realizes that life has not become easier — and may even be harder. People are more conscious of their spending, budget more tightly, and delay purchases.

Retirees Are Losing More and More

Retirees on fixed incomes are the primary victims of inflation. If a retiree received 20,000 rubles a month in November 2024, they will need 21,400 rubles in November 2025 to maintain their previous standard of living. However, pensions are indexed only once a year, typically in April or May, and the rate of indexing often lags behind the pace of inflation. The outcome: the real income of retirees is falling.

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. Retirees often adopt a "capital consumption" strategy, meaning they spend their savings faster than they initially planned.

Households Cut Back on Spending

When prices rise and the future is uncertain, people change their behavior. Restaurant orders have declined. People travel less. There are fewer trips to cinemas and theaters. Spending on entertainment, clothing, and books shrinks. People focus on essentials: food, housing, utilities.

This shift in consumer demand from peripheral goods to essentials shows how deeply inflation alters life. A visit to the theater, buying a book, a nice dinner at a restaurant — all these become luxuries that people can no longer afford.

Inequality Grows

Inflation exacerbates inequality. Poor families, who spend 50% of their income on food, suffer from 7-8% price increases on food much more than wealthy families, who spend only 15% of their income on food. The wealthy can shield themselves: they buy real estate (hedging against inflation), hold dollars, invest in businesses. The poor cannot — they keep their money in cash, which is losing value.

How Businesses and Industry Are Coping with Inflation

While inflation is a source of pain and loss for households, for companies, it's a puzzle on how to survive.

Profits Are Shrinking Like Never Before

Imagine a retail store selling clothing. Its suppliers have raised prices by 8%. The store wants a markup of 40% as before, but customers say, "I won't pay more, it's cheaper at the competitor's." The outcome: the store is forced to increase prices by 6%, while the supplier's has increased by 8%. The margin shrinks.

Manufacturing companies face the same problem, but it’s even sharper. A factory producing plastic containers sees that raw materials have increased by 10%, worker wages have risen by 7%, and electricity becomes more expensive monthly, while logistics costs have surged by 15%. Most companies have chosen a middle ground: to raise prices by 6-7% but at the same time cut costs elsewhere.

Companies Are Cutting Investments

When the loan rate jumped to 20%, many companies simply froze their investment plans. The result: business investments fell by about 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 lower productivity in the long term.

Three Ways to Survive

Companies have employed three primary strategies for survival. The first is frequent, small price increases. Instead of a single large increase of 10%, a company raises prices by 1% each month. People notice inflation less in this way. The second strategy is reducing product quality. The packaging becomes slightly smaller or thinner in material, but the price remains nearly the same. The third strategy is cutting expenses: companies slash marketing budgets, freeze hiring, and avoid modernization.

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

Future Forecasts and What Could Change

Will inflation continue to decline? Or will it stabilize at current levels? Or, could it accelerate once again?

Central Bank's Forecast and Its Assumptions

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

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

Thirdly, it is crucial that the assumption of public expectations returning to normal holds. As long as people expect inflation of 12.6%, they will demand higher wages, spend money faster, and inadvertently accelerate inflation themselves. If the Central Bank can convince people that inflation will be 4%, they will behave differently.

What Could Go Wrong

Economists identify several risks. Firstly, there is the risk of rising inflation: new blows to infrastructure could sharply raise fuel prices by 50-100% within a few months.

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

Thirdly, a deterioration in the geopolitical situation could trigger panic and a sharp weakening of the ruble, which would once again push up prices on imports. On the other hand, there are also downward risks. If investments decline significantly enough that demand drops below expectations, inflation could decrease more rapidly.

How to Protect Yourself from Inflation

The forecast may not come to fruition, so individuals have a motive to protect themselves from inflation personally.

For Workers and Employees

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

The second strategy is to develop skills and move to jobs with higher pay. A programmer who learns a new programming language may switch companies and receive a salary that is 20% higher.

The third strategy is indexation in contracts. It is necessary that the employment contract specifies that salaries will rise along with the consumer price index. The fourth strategy is income diversification: not to rely on just one salary, but to also earn income from renting out an apartment or selling goods online.

For Seniors and Savers

Seniors cannot demand a salary increase, so they need different strategies. The first is to hold money not in rubles, but in foreign currencies. Dollars or euros tend to maintain their value better than rubles.

The second strategy is real estate. Apartments and houses usually appreciate with inflation. A retiree who owns an apartment that they can rent out receives income that is protected from inflation.

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

The fourth strategy includes federal loan bonds (OFZ) and corporate bonds. The fifth strategy is physical assets. Gold, silver, and jewelry typically appreciate alongside inflation and serve as a safeguard.

For Investors

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

Real estate is a classic hedge against inflation in all countries. Rental commercial property provides income and protection.

Commodity futures and exchange-traded funds (ETFs) on oil, gold, and metals represent a bet on rising raw material prices, which typically correlate with inflation. If inflation is 10%, and the price of gold increases by 15%, the investor is protected.