The Bank of Russia warns about the impact on inflation of the partial mobilization for the war

MADRID, 28 Oct.

The Bank of Russia warns about the impact on inflation of the partial mobilization for the war


The board of directors of the Bank of Russia has decided this Friday to keep the reference interest rate for its operations unchanged at 7.50% and has warned that the partial mobilization ordered by the war in Ukraine may fuel inflationary pressures in the middle long term.

In this way, although the institution led by Elvira Nabiullina considers that the partial mobilization "will serve as a brake" on consumer demand and inflation in the coming months, it warns that "its subsequent effects will be pro-inflationary", since which adds to the constraints on the supply side.

In this sense, he points out that a significant proportion of companies still face difficulties in production and logistics, while restrictions in the labor market are increasing, driven in part by partial mobilization.

"While the partial mobilization may primarily create disinflationary pressure in the coming months due to weak consumer demand, its downstream effects will be pro-inflationary as it adds to supply-side constraints on the broader economy," Explain.

Regarding economic developments, the Bank of Russia has highlighted that annual inflation continues to slow gradually, which allowed it to moderate in September to 13.7% from 14.3% in August. According to the latest data, recorded on October 21, inflation was 12.9%.

Looking ahead to the year as a whole, the entity expects Russia's annual inflation rate to fluctuate between 12% and 13% in 2022 to slow down to a range of between 5% and 7% in 2023 and return to the objective of 4% in 2024.

Likewise, in its reference scenario, it foresees a GDP contraction of 3% to 3.5% in 2022 and that in 2023 the GDP growth rate will continue to be negative, with a contraction range of between 4% and 1 %, although he trusts that the GDP will grow again in the second half of next year to reach an expansion rate of 1.5% in 2024 and 2.5% in 2025.

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