Russia hikes interest rates to 19% amid soaring inflation and war costs

The Russian central bank, striving to combat inflation, has raised interest rates to 19 percent. According to AFP, inflationary pressure is increasing due to public spending intended to support the offensive in Ukraine.

The head of the Russian central bank, Elvira Nabiullina, stated that inflation has become "unacceptable." "We are ready to maintain a strict monetary policy for as long as necessary," she added during a press conference.

According to official statistics, the price increase in Russia in August was 9.05 percent. However, Pawel Jezowski, a stock investor and analyst of Russian economic data, claims it reaches up to 30 percent, as he mentioned at the end of July on the program "Didaskalia."

The Russian central bank raised interest rates from 16 percent to 19 percent. Nabiullina acknowledged that "the labor market remains tight" and that insufficient employment in many sectors of the economy is the "main obstacle" preventing production from increasing. According to AFP, employment shortages are not only due to the industry's competition with the army for people but also as a result of thousands of individuals fleeing abroad.

Significant spending on the army, payments to soldiers and their families, and spending on the arms sector, coupled with the overall shift of the Russian economy to a wartime mode, largely neutralizes the effects of Western sanctions. But this leads to inflation, explains the French agency.

In recent months, heads of Russian companies have complained about rising bank credit costs and, consequently, investments, which they say limits economic growth, especially in sectors not related to the arms industry.

The newspaper "Le Monde" recently emphasized that "the economy of death drives economic growth in Russia." According to the Parisian newspaper, significant spending on the arms industry, salaries for soldiers, compensation, and benefits for their families create a "financial bubble that prolongs the war."

"Due to these significant sums spent on the wartime economy and contract soldier salaries in Russia, there has been consumption-driven growth. (...) Unemployment is at its lowest level - 2.6 percent. Based on such parameters, the World Bank placed Russia on the list of 'high-income' countries in July," reported "Le Monde."

The cash injection that goes to consumers increases demand, but it also overheats the Russian economy, causing inflation to rise.

Nabiullina acknowledged at the end of July that "employee reserves and production capacities are virtually exhausted." The war causes a shortage of workers, while the entire industrial-military complex is looking for labor to maintain production at the required level, working 24 hours a day, seven days a week.

It is in the interest of dictator Vladimir Putin to further militarize the economy and inflate the financial bubble because there are no other methods to stimulate growth. According to "Le Monde," this complicates hopes for a quick end to the war, as "Russia could benefit from such growth for five to six years."