Four years into the war in Ukraine, the Russian economy has not yet collapsed. Rather, GDP numbers and wartime industrial output have often exceeded Western expectations. But despite Russia’s macroeconomic stability, problems lurk; ordinary Russian citizens are encountering rising food prices, higher fuel costs, growing tax burdens, and labor shortages.
So while the Kremlin has so far prevented the complete implosion of the Russian economy, the cost has been shifted onto Russian consumers, who are now paying higher prices for everyday goods.
Putin in 2021. Image Credit: Creative Commons.
Core Inflation Metrics
The Russian Federal State Statistics Service (Rosstat) offers a managed picture of the Russian economy. The annual inflation rate eased to 5.6 percent, which is well above the Central Bank of Russia’s (CBR) mandatory 4.0 percent target.
To combat the high inflation rate, the CBR is holding its core interest rate at a purposefully discouraging 14.5 percent. And despite reports of a 5.6 percent inflation rate, everyday Russians perceive price growth over the past year to be closer to 15 percent.
Food Costs
Food costs are up. This is the real pain point, the result of labor shortages, sanctions friction, currency pressure, and wartime spending distortions. Independent consumer basket tracking and media audits both support the claim that food prices have increased by double-digit spikes.
The total food basket, that is, a standard 59-product basic grocery basket, rose from 7,258 rubles ($10.22 US Dollars) to 8,724 rubles($12.29 US Dollars)—an increase of 18.6 percent, or $2.07 US Dollars.
Dairy products in particular have spiked, with a massive 41 percent increase over the last 24 months; this spike is a result of severe workforce shortages, as agricultural laborers are funneled to the front lines or to war factories.
Imported produce, fresh fruits, and vegetables have also experienced a 15 percent increase due to currency fluctuations and severe international payment-processing sanctions. Other specific pantry items have locked in heavy price jumps: rice has jumped 24.9 percent; cookies 24.4 percent; salt 23.2 percent; and chocolates 21.7 percent.
Fuel Costs
The war, specifically Ukrainian drone attacks, has disrupted Russia’s domestic refining capacity. Similarly, military fuel has been prioritized over consumer fuel. The result: fuel costs are up for the everyday Russian. Consumer automobile gasoline is up 12.3 percent.
And exacerbating the problem, the basic Value Added Tax, or VAT, rose from 20 percent to 22 percent. According to the Finance Ministry, the VAT increase was necessary to fund defense and security.
The tax increase ripples through manufacturing, logistics, and retail, raising the baseline price of goods and services across the economy, including fuel.
Relief Unlikely
The Russian consumer is unlikely to experience relief soon.
Why? Inflation is not simply a temporary shock but a structural issue tied directly to a wartime economic structure over Ukraine. Defense and security spending now consumes 30 percent of the federal budget.
As the government spends heavily on war, cash floods the economy, and civilian production is constrained, prices rise. Meanwhile, the CBR’s high interest rates suppress inflation somewhat—but also make loans expensive, discourage investment, and slow civilian production. So, without the war ending, without sanctions relief, without labor normalization, inflation pressures will likely continue through 2026.
Political Consequences for Putin and the Ukraine War
In a different political system, the administration governing during such economic pain would likely face political consequences. But Putin’s administration is likely stable. The Kremlin has advantages in political durability due to severe political repression, media control, and a weak opposition.
Still, long-term political risk is growing. Putin’s political legitimacy has historically rested on stability and improvements in living standards.
Russian T-90 Tank. Image Credit: Creative Commons.
Now, the social contract is becoming increasingly strained due to the war in Ukraine. The Kremlin will need to monitor unrest over the high cost of living and public exhaustion over the economy and the war.
While Russia has successfully transformed its economy into a wartime system over Ukraine, the question will become how long the civilian population is willing to absorb the costs. Indeed, the Russian economy has proven more resilient than many Westerners expected. But resilience is not the same thing as prosperity, and Russian consumers know the difference.
About the Author: Harrison Kass
Harrison Kass is a writer and attorney focused on national security, technology, and political culture. His work has appeared in City Journal, The Hill, Quillette, The Spectator, and The Cipher Brief. He holds a JD from the University of Oregon and a master’s in Global & Joint Program Studies from NYU. More at harrisonkass.com.
