Russia can boost its economy by 7-8 trillion roubles ($85-97 billion) without stoking significant inflationary risks, a senior official said on Wednesday, as Moscow deals with supply curbs, a fall in oil production and manufacturing output slows.
Annual inflation in Russia has spiked to a seven-year high of 16.70%, while the rouble and external trade have dropped after Western countries imposed sanctions over the Ukraine conflict.
Russia hiked its key interest rate to try to curb volatility, introduced capital controls, banned foreign holders of Russian assets from selling investments and offered over 1 trillion roubles in social payments and support to businesses.
“We have certain macroeconomic limits under which we are working,” First Deputy Prime Minister Andrei Belousov said. “We have more or less understood the limits allowing us to work without increasing pressure on inflation.”
Some Russians rushed to snap up essential food items in the first days after Moscow launched what it calls its “special military operation” in Ukraine on Feb. 24.
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By late March, demand for the most popular socially important goods started to stabilise, Belousov said.
Yet sugar and the so-called “borscht basket”, a Russian version of the Big Mac index which contains the most popular daily food items including potatoes, onions, carrot and beetroot, spiked by 50%-60% after the sanctions, Belousov told the upper house of parliament.
Salt, flour and cereals increased in price by 10%-20%, with stocks now enough for five to six weeks, he said, compared with more than two weeks for sugar and 10-12 weeks for baby food and canned food.
WEEKLY INFLATION DOWN
Russian weekly inflation fell to 0.66% in the latest week, Belousov said, after growing by an average of 2% in the weeks after Moscow sent troops into Ukraine.
Inflation in Russia could reach 17%-20% this year and the economy may contract by more than 10%, its deepest since 1994, according to Alexei Kudrin, the head of Russia’s audit chamber and a former finance minister.
Output volumes had fallen by around 11% in the industry and trade sectors, with other sectors shrinking by 9-10%, Belousov said without elaborating. Sources told Reuters earlier that Russian oil output hit its lowest since mid-2020 this week.
The energy ministry had earlier suspended the publication of monthly oil and gas output figures, while the central bank stopped disclosing foreign trade data, cutting investors off from the most essential data about the state of the Kremlin’s finances.
Russia plans to use all funds available this year for support measures, Prime Minister Mikhail Mishustin has said, warning that there will be no budget surplus.
Belousov said on Wednesday that budget spending has already increased by 20% in the first three months of 2022 from a year ago.