Moscow is battling to avoid the “disease” of “chronic” inflation throughout the Russian economy, the head of the central bank said Tuesday in a stark warning over the dangers of rising prices.
Prices have accelerated rapidly since Russia launched its military offensive on Ukraine—a negative spillover into the domestic economy of the huge sums Moscow is spending on the campaign.
Inflation was running at 8.5 percent on an annual basis in October, more than double the state’s official 4.0 percent target.
Central bank Governor Elvira Nabiullina told lawmakers that high price rises were “forcing us to act decisively, so the disease does not become chronic”.
The bank has raised interest rates to 21 percent, their highest in more than two decades, in a bid to bring down the pace of price increases.
Nabiullina rejected calls from lawmakers to take a softer approach, saying that this would backfire and that a “timely monetary policy” was needed to remove the risks of stagflation — a scenario where there is little growth but fast inflation.
She said if there were no further shocks to the economy, rates could start to come down some time next year.
The rate rises have caused concerns over the damage they could do to private businesses and consumers, particularly given increased volumes of short-term loans and credit card debt that have been taken out in recent years.
Nabiullina has previously acknowledged that her options to bring down inflation are limited in the face of heavy government spending on the Ukraine offensive.
The Kremlin’s outlays on the military are not swayed by higher borrowing costs and the country faces widespread labour shortages across civilian parts of the economy.
Nabiullina said central bank surveys showed that three-quarters of businesses were having trouble finding enough workers.
Hundreds of thousands of young men have been called up to fight in Ukraine, fled into exile or been recruited by the country’s booming weapons industry.