Putin says Russia’s economy is overheating, inflation is worrying

By Gleb Bryanski and Vladimir Soldatkin

MOSCOW (Reuters) – The Russian economy is showing signs of overheating which is stoking worryingly high inflation, President Vladimir Putin said on Thursday.

Addressing Russians in his annual phone-in, Putin backed the central bank’s tight monetary policy but also suggested it could have acted in more timely fashion.

The regulator is expected to hike its key interest rate aggressively by 200 basis points to 23%, the highest level in over 20 years, at its next meeting on Friday. Its tight monetary policy has prompted strong criticism from businesses.

“There are some issues here, namely inflation, a certain overheating of the economy, and the government and the central bank are already tasked with bringing the tempo down,” said Putin.

Putin said he had a conversation with the central bank’s governor Elvira Nabiullina before the phone-in, who had warned him that inflation will be 9.2%-9.3% in 2024, well above the central bank’s estimate of 8.5%.

Putin said that as a result of the tight monetary policy and government measures to cool the economy down, economic growth rates will come down in 2025 from this year’s 4%.

“I think the (growth rate) next year should be somewhere around 2-2.5%, a sort of soft landing in order to maintain macroeconomic indicators,” Putin added.

INFLATION IS A BAD THING

Putin said that the central bank could have used instruments other than the key rate earlier to cool down the economy, while the government could have worked with different sectors of the economy to boost supply.

“It would have been necessary to make these timely decisions. This is an unpleasant and bad thing, in fact, the rise in prices. But I hope that in general, while maintaining macroeconomic indicators, we will cope with this too,” he said.

Putin said that Western sanctions, as well as this year’s bad harvest due to extreme weather in many agricultural regions across Russia, were also to blame for high prices.

Stubbornly high inflation, driven in recent months by soaring food prices, has hit Russians’ pockets. Latest inflation data showed prices for tomatoes rising by 4.1% and prices for cucumbers by 10% during one week in December.

This time last year, Putin was forced to issue a rare apology over rising prices for eggs. A year on, the spiralling cost of butter has prompted thefts at some supermarkets.

Households’ inflationary expectations, a key gauge for the central bank, hit this year’s highest level this month. Grigory Zakuraev, a factory worker, told Reuters that 1,000 roubles at the supermarket goes far less than it did three years ago.

“Everything has gone up in price,” he said. “Of course, you feel it on the wallet, the change in prices, inflation.”