Russia’s war economy has found in butter the latest expression of the mismatch between galloping defense investment and the scant fight against inflation. The basic product, which has become more expensive by 26% year-on-year, is now found on supermarket shelves inside boxes with alarms to prevent the thefts that have begun to occur.
Maintaining the advantage on the battlefield in Ukraine is the Kremlin’s priority. President Vladimir Putin’s spending on weapons is increasingly at the expense of an increase in the prices of basic products for daily use due to the shortage of workers to cover factory shifts. A few days ago, security cameras in Yekaterinburg, the capital of Russia’s defense industry, captured two men robbing a milk factory and taking, in addition to money, 20 kilos of butter.
Alexandra Prokopenko, a researcher at the Carnegie Russia Eurasia Center in Berlin, has indicated to the Financial Times that “any average butter factory would be more than happy to meet demand and work three shifts, but there are not enough staff to hire” but concludes that “you can’t fight inflation and a war at the same time.”
Consumer goods are becoming more expensive at a dizzying rate and it does not seem that the situation is going to reverse; The Russian central bank estimates that inflation could reach 8.5% this year, double its target.
Putin has asked the authorities to stabilize the country’s economy but has shown no signs of cutting defense spendingwhich is expected to reach a record 13.5 trillion rubles ($145 billion) in next year’s budget. For now, the central bank raised the key interest rate to a record 21 points in October.
This high defense spending has increased the rush to hire in the sector, where many factories are working in three shifts. In this context, unemployment has fallen to a historic low of 2.4%, forcing employers to increase wages to compete and making it almost impossible to increase the production of goods and services without causing notable price increases.
The scenario was already defined at the end of October by the governor of the central bank, Elvira Nabiullina, when she said before Parliament that the persistently high inflation was a sign “that demand has significantly exceeded the production capacity of the economy“and remembering that “in some sectors there is almost no inactive equipment, not even obsolete machinery.”
The defense splurge has come at a time of decline for Russia’s raw material export earnings and difficulties in converting the ruble in the face of American pressure that limits payments for goods. This, resulting in rising costs for everyday items, leaves Russia increasingly reliant on imports at a time when the country effectively has no way to cap prices.
The effects of inflation are felt differently depending on the proximity of Russians to the defense sector. According to data from the Russian state statistics institute Rosstat, in the last seven years salaries in the information technology sector, heavy industry and construction have increased by 170%, while in education and municipal services they have risen between 10% and 20%.
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