Prices are spiraling out of control in Russia as the effects of sanctions against Vladimir Putin’s invasion of Ukraine trigger shortages and pummel the ruble.
Inflation in the country is now running at an annual rate of 200% or 2% a week, according to Brian Deese, director of the US National Economic Council. Speaking at a breakfast hosted by the Christian Science Monitor on April 6, he also forecast that Russia’s economy would shrink by 10% to 15% by the end of 2022.
On Wednesday, the US rolled out a new set of sanctions preventing US companies from investing in their Russian facilities or in new Russian companies. The restrictions also sanctioned Putin’s two daughters for the first time in history.
“The United States and more than 30 allies and partners across the world have levied the most impactful, coordinated, and wide-ranging economic restrictions in history,” the White House said. “Russia will very likely lose its status as a major economy, and it will continue a long descent into economic, financial, and technological isolation.”
Is Russia returning to hyperinflation?
Deese’s inflation estimate is a massive jump from the 8.4% annual rate that the government reported for 2021. Russia’s own data show rapidly climbing prices, with the country’s economy ministry reporting 14.5% annual inflation in March. To stave off hyperinflation, Russia’s central bank has raised interest rates from to 20% from 9.5%, and ordered companies to sell 80% of their foreign currency revenues to support the ruble.
The last time Russia saw hyperinflation was in the 1990s, after the collapse of the Soviet Union. The end of price controls and the rocky transition out of communism led to economic chaos, with the annual inflation rate reaching an all-time-high of 2333% in 1992.
That period of economic instability set the stage for the rise of Putin, who promised to get the country back on track with his reformist party. “We are a rich country of poor people. And that is an intolerable situation,” Putin told voters in 2000 ahead of his first presidential election. More than 20 years later, his unprovoked invasion of Ukraine is making Russians poorer.