Putin instructed the government to stop the acceleration of price increases

Russian President Vladimir Putin noted the acceleration in price growth. He called on the government to maintain price stability in the Russian economy, although inflation, he said, is moderate for now.

“We are well aware and see the main threats to socio-economic development. <…> One such threat is rising inflation. Yes, it is moderate at the moment, but there are already signs of inflation accelerating, e.g. due to the fact that the supply of Russian producers is not keeping up with the demand,” said the president at a meeting devoted to economic issues.

He said the government should “balance supply and demand” and keep prices stable in the country. “The government plays a leading role here. It should contribute to the maximum expansion of the production of goods and services, the removal of the so-called bottlenecks in logistics, energy, the real sector, etc., Putin added.

The Central Bank sharply raised its price growth forecast after the results of the previous meeting of the Board of Directors from 4.5-6.5% in April to 5-6.5%. Inflation exceeded 4% on an annualized basis and is still growing, he warned regulator.

The Central Bank explained that the reason for the acceleration in price growth is that the supply cannot keep up with the growing demand, which is stimulated by the state by increasing spending (including for war).

“The contribution of fiscal policy to growing domestic demand continues to increase, including through the expansion of public investment,” the Central Bank said in a press release.

As a result, this could lead to an overheating of the economy, the regulator warned. This will take place with the maintenance of “increased demand from the public sector with further intensification of consumer demand,” the Central Bank said. The Bank of Russia also raised its GDP growth forecast from 0.5-2% to 1.5-2.5% at the end of the year.

As a result of the meeting, the Central Bank sharply raised the interest rate by 1 percentage point to 8.5%. The Bank of Russia admitted it the stakes may be raised again at future meetings.