The Kremlin’s wartime economy is heading toward dangerous crosscurrents

fish. A chick. Pasta. Woof. All this is much more expensive in the central Russian city of Ufa, and Vera, a 63-year-old retiree, is not happy.

“Nothing is getting cheaper. Everything is getting more expensive, a little bit every day.” She told the Tatar-Bashkir service of RFE / RLShe added that she supplements her monthly pension of 25,000 rubles ($323) with a part-time job to make ends meet. She added that cucumbers “are now priced at 300 or 400 rubles per kilo. They were much cheaper before.”

Vera is not wrong. According to the state statistics agency Rosstat, prices rose by 2.1 percent in the first two months of 2026.

Approaching the fifth year of an all-out war in neighboring Ukraine, the Kremlin is battling another implacable enemy at home: rising consumer prices and rising levels of unhappiness among ordinary Russians.

The war years were difficult for many Russians. Despite being hit by Western sanctions imposed for the invasion of Ukraine, the economy has held up much better than many experts, inside and outside Russia, expected.

The government opened the spending spigots for the army and the military-industrial complex to fuel and fuel the war. The extremely high wages and benefits received by volunteers who took part in the fighting transformed many Russian regions, especially poor areas, and widows and survivors also benefited from the state’s generosity.

It worked — at least until the influx of money began distorting the economy, driving up wages for civilian-sector jobs: such as factory workers who assemble artillery shells or sew tactical vests. This in turn led to higher inflation, which rose to nearly 10% in 2024.

The Russian central bank raised interest rates to tame inflation and bring the economy back down to earth. The question is, will the landing be hard or soft?

“In general, the economy is suffering from stagnation, and even stagflation,” said Dmitry Belousov, an expert and economist. Deputy Director of the Center for Macroeconomic Analysis and Short-Term Forecasting in Moscowhe said last month.

“Unless an invisible financial catastrophe occurs, the economy is unlikely to collapse.” Written by Alexander Collianderea former banker and financial journalist, is now a fellow at the Center for European Analysis, a think tank in Washington. “But the situation will continue to get worse, and the room for maneuver available to the Putin regime is rapidly narrowing.”

Recession or stagflation

For months, policymakers and economists alike have been warning that the war economy party is over. Some prominent business leaders, such as German Gref, who heads the state-owned bank then known as Sberbank, have warned of a “recession” — when slow economic growth is accompanied by high unemployment or high inflation.

With Putin’s tacit approval, the head of the central bank, Elvira Nabiullina, moved to reduce inflation by raising lending rates. Figures released by Rosstat last month showed the efforts worked, with price growth slowing to 5.6 percent in 2025.

Rostat Expectations now The economy is expected to grow by 1.1 percent in 2026, compared to 4.9 percent two years ago.

Meanwhile, business leaders complained that they were reeling under the weight of expensive debt.

Concerned about declining revenues needed to support its military spending on the war in Ukraine, the government raised the national value-added tax by two percentage points, adding further pressure on prices.

The result, in early 2026, is a cross-current that will strain the finances of ordinary Russians like Alexei, a 55-year-old cultural worker who owns a house in a suburb of Ufa.

Like Vera, he asked to be identified by a pseudonym to avoid police scrutiny.

“Money is becoming increasingly scarce” He told RFE/RL. “Utility bills are skyrocketing. They are constantly being recalculated, which is not in the consumer’s interest.”

“Food has also become expensive, and we have to look for alternatives,” he said.

Russian media took notice.

“Cucumber at the price of avocado” RMoscow popular newspaper Moskovsky Komsomolets This highlights official data showing that option prices have jumped 43 percent since January 1. Tomato prices increased by 21 percent.

Economic uncertainty has also increased economic anxiety among a growing number of Russians, according to public opinion polls.

“Rising prices and impoverishment of the population is the main problem” among educated Russians, Nezavisimaya Gazeta newspaper he wrote earlier this month.

“Russia faces increasingly serious economic challenges and ignores almost all non-military sectors as the war in Ukraine continues.” Estonian Military Intelligence said in its annual threat assessment report. “As a result, the risk of economic and social instability is expected to rise in 2026.”

Bank on this

Also among the major cross-currents buffeting the economy is a decline in oil and gas revenues, which the Kremlin has relied on to help pay for the war.

New sanctions imposed by the United States and the European Union have finally reduced Moscow’s ability to export hydrocarbons, including to its main buyers: China and India. Revenues fell by about two-thirds, from 1.12 trillion rubles ($14.5 billion) in January 2025 to 393 billion rubles ($5.1 billion) last month, according to state statistics.

“This will have a strong impact because the Russian budget does not consist only of some small government expenditures and huge expenditures on the war,” Igor Lipsitz, a Russian economist who lives outside the country, told Current Time. “It is a huge source of income for the entire economy. The Russian economy relies heavily on government purchases.”

Some experts, including Lipsitz, as well as the Center for Macroeconomic Analysis and Short-Term Forecasting, say the banking sector is now in crisis due to companies’ inability to repay high debts and loan defaults.

“The financial crisis currently sweeping Russia will quickly lead to many public sector employees losing their salaries on a regular basis. This will then extend to pensions.” He told current time.

Retirement pensions for the elderly in Russia constitute the third plank of the Kremlin’s policy. Reforms to the national pension system, including raising the retirement age, sparked national protests in 2018.

New Rosstat figures show that pensions have fallen to less than 24 percent of average earnings – well below the government’s target rate.