Interest rates in Russia are expected to hit 23% this month as the Central Bank tries to control inflation. Inflation reached nearly 9% last month and has remained high for over a year. Food prices have risen dramatically: bread is up 12%, apples 14%, milk 15%, cabbage 26%, butter 30%, onions 33%, and potatoes 74%. Grocery stores have reported an increase in thefts, with some products like butter now kept under lock and key Canadian News.

High Borrowing Costs and Economic Consequences

To combat inflation, the Russian Central Bank raised interest rates to 21%. While this is a standard response to inflation, it comes at a steep cost. High borrowing rates have made homeownership impossible for many Russians and led to a 20% increase in corporate bankruptcies. Companies like Russian Railways have scaled back investments because loan costs have skyrocketed Canadian News. They planned to spend 1.3 trillion rubles but had to cut those plans by a third to manage ballooning interest payments.

Military Spending as the Root Cause

Raising interest rates isn’t working as intended because the root cause of inflation is government spending on the war in Ukraine. Military spending now consumes one-third of Russia’s national budget, more than almost any other country except Ukraine. This focus on defense has strained the labor market. Russia’s unemployment rate is near 2%, driven by hiring in defense industries and the armed forces, leaving other sectors short of workers.

Wage Growth in Defense Industries Canadian News

When labor is in high demand, wages rise. Salaries in defense industries have grown fivefold since the war began. Military salaries and bonuses for soldiers are among the highest Canadian News. However, these benefits are not evenly distributed. Workers in other industries struggle with labor shortages, rising wages, and a lack of affordable loans due to high interest rates.

Sanctions, Ruble Weakness, and Economic Risks

Western sanctions have further isolated Russia’s economy, driving the ruble to record lows.

• This makes imports more expensive and fuels inflation.
• Despite a GDP growth rate of 4% this year, forecasts show it will drop by more than half next year.
• Falling oil prices and high inflation are creating a dangerous imbalance.

Experts warn of potential hyperinflation and an economic collapse if these trends continue.

Long-Term Outlook

While Russia’s economy is unlikely to collapse immediately due to its financial reserves, it cannot sustain this level of wartime spending forever Canadian News. As the war continues, the civilian economy risks being severely damaged, leaving the country with a long-term economic crisis.