The Russian war economy has found in butter the latest expression of the inadequacy between galloping investments in defense and the weak fight against inflation. The basic product, whose price has increased by 26% year-on-year, can now be found on supermarket shelves in boxes equipped with alarms to prevent the thefts which have started to occur.
Maintaining the advantage on the battlefield in Ukraine is the Kremlin’s priority. President Vladimir Putin’s arms spending increasingly comes at the expense of an increase in prices of everyday basic goods due to a lack of workers to fill factory shifts . A few days ago, security cameras in Yekaterinburg, the capital of Russia’s defense industry, filmed two men robbing a milk factory and taking, in addition to the money, 20 kilos of butter.
Alexandra Prokopenko, a researcher at the Carnegie Russia Eurasia Center in Berlin, told Financial Times that “any average butter factory would be more than happy to meet demand and work three shifts, but there aren’t enough people to hire”, but concludes that “you can’t fight against inflation and a war at the same time.
Consumer goods are becoming more and more expensive at a dizzying pace and it doesn’t look like the situation is going to reverse; The Russian central bank estimates that inflation could reach 8.5% this year, double its target.
Putin asked the authorities to stabilize the country’s economy, but showed no signs of reducing defense spendingwhich is expected to reach a record 13.5 trillion rubles ($145 billion) in next year’s budget. For now, the central bank raised its key rate to a record level of 21 points in October.
This high defense spending has increased the rush to hire in this sector, where many factories work three shifts. In this context, unemployment fell to a historic low of 2.4%, forcing employers to increase wages to remain competitive and making it almost impossible to increase the production of goods and services without causing price increases. notable.
The scenario had already been defined at the end of October by the governor of the central bank, Elvira Nabiullina, when she declared before Parliament that the persistence of high inflation was a sign “that demand has far exceeded the production capacity of the economy” and recalling that “in certain sectors, there is almost no inactive equipment, not even obsolete machines”.
The defense splurge comes at a time of declining revenue from Russia’s raw materials exports and difficulty converting the ruble in the face of U.S. pressure to limit payments for goods. This situation, which results in rising costs of everyday products, makes Russia increasingly dependent on imports at a time when the country effectively has no way of capping prices.
The effects of inflation are felt differently depending on the proximity of Russians to the defense sector. According to data from the Russian state statistical institute Rosstat, over the past seven years, wages in the information technology sector, heavy industry and construction have increased by 170%, while in education and municipal services, they increased between 10 and 20%.
