Russia Was Hit by Inflation and Depreciation of Currency During the War

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Russia Was Hit by Inflation and Depreciation of Currency During the War


The war in Ukraine is slowly also causing heavy losses for Russia. The cost of living for Russians has soared by 14% in the past week due to rising prices for basic household goods.

At the same time, inflation is also predicted to continue to rise. This is indicated by the value of the ruble which has fallen sharply since the Ukrainian war began. Its value is down about 22% this year and pushes up the cost of importing goods.

On Wednesday (23/3), Russia's Ministry of Economy said annual inflation had jumped 14.5% in the week ended March 18, the highest since late 2015.

The Federal State Statistics Service said the cost of sugar rose by as much as 37.1% in certain regions of Russia, an average of 14%.

Meanwhile, onion prices experienced the second largest increase during the week, up 13.7% nationally and 40.4% in some regions. Prices of other basic goods such as diapers rose 4.4%, toilet paper rose 3%, and black tea rose 4%.


Managing Partner at SPI Asset Management, Stephen Innes, said this price increase was largely due to the very weak value of the ruble.

"The biggest cause is import inflation. Anything Russia imports is going to be exponentially more expensive because the ruble is weaker," Innes told the BBC.

Counterattack

The exclusion of Russian banks from Western financial markets, such as the US, UK and Germany, was certainly the main factor in the weakening of the ruble. They also banned transactions with Russia's central bank, state-owned investment funds and the finance ministry.

In a bid to stop the currency from falling further, the Bank of Russia has more than doubled its interest rate to 20% in March.

In response to various sanctions, Russia has threatened to confiscate the assets of businesses that have ceased to operate in the country. One that has already been accomplished was to sanction US President Joe Biden and 12 other US officials last week.

Last Wednesday, Russian President Vladimir Putin announced that the country would sell natural gas to countries deemed unfriendly in rubles. The move was aimed at strengthening the currency.

The European Union has relied on Russia for 40% of its gas reserves. Many contracts are in Euros and it is not yet clear if Russia can convert them into rubles.


Putin's announcement of gas sales in rubles at least managed to push the currency to its highest level in three weeks and close at 97.7 against the US dollar.


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