Russia economy meltdown as inflation soars to three year high

Russian consumers have been hit with a hefty spike in inflation, caused primarily by an increase in charges for utilities. Inflation jumped to a three year high in the first week of July, according to new data.

The rate climbed to 0.79% in the period July 1-7. This is the highest weekly increase in the consumer price index since the spring of 2022, "Tariffs for certain types of utilities have changed on average across Russia," the Kremlin's statistical agency Rosstat said. The reason for the jump in inflation is the increase in housing and communal services tariffs.

A year ago, during the "tariff" week (from June 25 to July 1), prices rose by 0.66%. The government planned that tariffs would rise by an average of 11.9%, but regions can raise them more, which is what many did.

"Tariffs for certain types of utilities have changed on average across Russia (this is Rosstat's euphemism for the word "increased" - TMT ): cold water supply +14.9%, sanitation +14.6%, hot water supply and heating +13.8%, liquefied gas +13.5%, electricity +13%," Rosstat wrote in a statement.

The increase in housing and utilities tariffs will continue to affect inflation for several more weeks. Soaring inflation has become a serious problem for the Kremlin, forcing the Central Bank to raise interest rates to levels not seen in almost two decades.

Last year, bank officials raised interest rates to 21%, before cutting it back to 20% in recent weeks.

Russian shoppers have been particularly hit hard by spiralling food costs, which has seen prices for some staple items like potatoes skyrocket by a whopping 167%. The rising costs of food has forced the Kremlin to consider re-introducing price controls that were last used during the Soviet Union.

Yulia Ogloblin, Deputy Chairman of the State Duma's Agricultural Committee, said the example of the Soviet price control model has already been discussed by the Kremlin.

"We have seen a 'swing effect' occur more and more often lately, when the purchase price of products drops sharply and then suddenly rises," she said. "This happened with potatoes, milk, and butter. Prices should be set based on the current conditions, costs and profitability of producers."