Two months ago we reported on Russian inflation, and showed that over the past year the country’s rate of price increase had doubled, in horrifying fashion. Since then, as the chart above shows, things have gotten even worse.
Russia’s consumer price inflation rate stood at 7.4% for May 2013, well above economists’ predictions and well above the Russian Central Bank’s outside target range. Food inflation was a truly terrifying 9.2% for the month (Russians spend almost half their income on food, compared to ten percent in the USA), and Russian inflation stood at the highest rate it has reached in nearly two years.
Over the past three months, prices have soared 0.2 points per month. And the worst news of all is that while inflation has been rising, economic growth has been dramatically slowing. In the first quarter of this 2013, year-on growth was wel below 2%. With demand falling in this way, prices should not be rising, they should be falling. That they are rising shows an extremely critical fault in the basic foundations of the Russian economy.
It’s now perfectly clear that we were right two months ago in believing that inflation is out of control. The Putin regime is experiencing a meltdown in its primary directive, boosting the economy, the main basis of Putin’s claim to legitimacy. Economic growth is faltering, prices are soaring, and there is no sign that Putin can do anything about it. To the contrary, in a disturbing sign of Russia’s descent into neo-Soviet darkness, Putin has just driven Russia’s leading economist, Sergei Guriev, the Russian Paul Krugman, into exile, apparently to silence his persistent criticism of the regime.
The are dark days ahead for Putin’s Russia.