Russia’s inflation problem is getting out of hand, and the world’s food supply problem is also worsening, as the war in Ukraine rumbles on for a third month.
Vladimir Putin has plans to fix both of them, plans that overlook his role in worsening each.
First, Kremlin officials are claiming that Western sanctions on Russia were responsible for rising global food prices, despite experts agreeing that Russia’s blockade of Ukrainian grain leaving the country’s ports is largely to blame. Putin has made the same accusation himself multiple times, as part of an effort to get sanctions on Russia lifted.
If the sanctions are lifted, Putin argues, the food supply will start to flow again.
More recently, Putin announced Wednesday that he would be raising pensions and the minimum wage by 10%.
While announcing the hikes at a televised State Council meeting in Moscow, Putin admitted that a “difficult year” lies ahead for Russia’s economy due to inflation, but he emphasized that the country’s economic troubles are not exclusively tied to the ongoing war in Ukraine.
Economists widely agree that Putin’s unprovoked invasion of Ukraine had a huge impact on worldwide inflation remaining high well into 2022, with the Biden administration going so far as to call it “Putin’s price hike.”
Putin prefers to exclude that from his economic analysis.
“In countries that aren’t conducting any operations—say, overseas in North America, in Europe—inflation is comparable and, if you look at the structure of their economies, even more than ours,” Putin said, failing to mention that the war in Ukraine has been a big driver of inflation in the West.
But runaway prices are still a growing concern for Russia. Annual inflation in the country is currently sitting at 17.8%, a two-decade high. Russian inflation may reach as high as 23% this year, according to the country’s central bank, and prices are not expected to stabilize before 2024.
Putin’s move to raise minimum wages and pensions is likely political, Jacob Kirkegaard, a senior fellow with the Peterson Institute for International Economics, told Coins2Day, as it should appeal to a large demographic of people. But in economic terms, it is a risky plan.
Raising wages should help more vulnerable consumers stay afloat in the short term, but it is far from an effective long-term strategy, as it could in theory force business owners to raise their prices to compensate for higher expenses, which could lead to higher consumer costs. A 2019 study in Germany found that a 1% increase in wages leads to an increase in consumer prices by around 0.3% over the next few years.
This is known as a wage-price spiral, wherein workers’ higher wages lead to companies increasing prices across the board for their goods and services, which can in turn push more workers to ask for higher wages to accommodate the higher costs of living.
“This is sure to be inflationary, and could indeed be the starting point of more persistent price-wage spirals under the assumption that sanctions remain in place for the foreseeable future,” Kirkegaard said.
Putin holding the world to ransom
Like most of the world, a large part of Russia’s inflationary problem is being caused by food prices, which are up over 20% in the country. Annual food prices globally are up nearly 30%, according to the UN, and a large reason behind this is the ongoing blockade of Ukraine’s ports by Russian forces, which has left nearly 25 million tons of essential grains stranded.
The food shortage is particularly devastating in several African and Middle Eastern countries, which have historically relied on Russia and Ukraine for their food imports. Ukraine provides food for as many as 400 million people worldwide who are now at risk of going hungry, according to the UN, as many of these countries are in places that cannot grow their own food year-round.
Western nations have accused Putin of holding the world at ransom by not lifting the blockade of Ukraine’s ports and leading to rising inflation around the globe.
“It is completely appalling that Putin is trying to hold the world to ransom, and he is essentially weaponizing hunger and lack of food amongst the poorest people around the world,” UK Foreign Minister Liz Truss said during a diplomatic visit to Bosnia on Thursday.
Truss said that Russia was seeking sanctions relief in exchange for lifting the blockade, something that the U.K. Was not prepared to give despite the growing urgency of a global food crisis.
