Putin is "suffocating" inflation by stifling the economy: how the regime is saving the ruble at the cost of Russia's future

The Kremlin boasts of containing inflation and “stability,” but behind these figures lies an economy that increasingly resembles a hot but exhausted military corps. Four years of war, excessive military spending, manual exchange rate and interest rate controls, and an attempt to appear “normal” at the same time have created a trap for Russia in which the fight against prices turns into a slow strangulation of its own growth.^{1 6 8} .

How the Kremlin made the fight against inflation an “ideology”

The Moscow Times article describes how Putin has turned inflation control into an almost separate doctrine in recent years – combining the advice of “court financiers” with his own political logic of maintaining power.¹ Since the start of the full-scale invasion in 2022, the Russian authorities have consistently chosen tough anti-inflationary measures: sharp rate hikes, import restrictions, currency and capital restrictions, tax maneuvers^{1 8 9} Formally, the goal remains unchanged – returning inflation to 4% in 2026, which Central Bank Governor Elvira Nabiullina continues to speak of as a “sacred goal.”^{1 2} .

The comparison of the war years with the previous decade, to which the author refers, shows a change in emphasis: if before 2014 the Russian model balanced between growth and stability, then after the annexation of Crimea and especially after 2022, "Putinomics" became a survival regime under sanctions.^{1 6} Between 2018 and 2021, the economy virtually stood still: cumulative growth of about 8%, stagnant household incomes, and inflation close to target.¹ . A full-scale war broke this balance: Putin refused to reduce military spending and to tolerate higher inflation, choosing the worst combination for long-term dynamics - a constant "hand-to-hand combat" with prices against the backdrop of growing deficits and overheating.^{1 6 8} .

Military "overdose": the economy on military doping

The key driver of Russia's current performance is the military budget. Think tanks note that a sharp jump in defense spending has allowed the Kremlin to create a short-term illusion of growth - factories are full, unemployment is practically disappearing, and defense sector salaries are growing by 30–50% every year.^{3 6} For depressed regions, this really looks like an “economic miracle” – defense money is boosting local economies, recruitment bonuses and salaries for contract workers are becoming unprecedented for the province.³ But this growth is built on a single source of demand – government orders for war – and creates almost no civilian added value.^{3 8} .

By mid-2024, according to Western researchers, the Russian war economy had reached its peak: defense factories were operating at full capacity, the labor shortage was estimated at 2–3 million workers, the consumer market was overheated, and real estate prices were breaking records.³ In this mode, any additional wave of military orders no longer adds real capacity – it only pushes up wages and prices, creating a classic situation where demand can be “drawn by decree”, but supply cannot be expanded.^{3 6 8} This is what pushed inflation above 10% officially and even higher de facto, especially in the segment of mass-market goods.^{3 9} .

The Central Bank between the hammer of war and the anvil of the Kremlin

To stop the inflationary wave, the Bank of Russia has taken a sharp tightening of monetary policy: high key rates, expensive loans, restrictions for importers and strict control over currency flows.^{2 8 11} These steps worked like a textbook: inflation in 2025 fell sharply, the ruble strengthened, and prices for some non-food goods stabilized.^{2 11} . However, the “success” came at a high price: non-defense civilian sectors suffered a credit hit, domestic demand collapsed, and the budget lost a significant portion of its revenues tied to the weak ruble – including some oil and gas revenues and VAT on imports.^{2 8 11} .

Analysts cited by The Moscow Times describe this as a systemic dilemma: in order to contain prices, the Kremlin is forced to deliberately slow down growth, even confirming in public statements that the economy is “deliberately slowing down to control inflation.”^{1 10} In response, proposals from “domestic economists” appear – for example, not to lower rates, but simply to raise the inflation target, recognizing a higher price level as the new norm.¹ But every time the technocrats propose to change the framework, Putin intervenes: in December he publicly made it clear that the government, administration and Central Bank must continue to hold the 4% rate at all costs.¹ This “personal red line” makes flexible risk management virtually impossible.

Compressed spring: deficit, debt, reserves and exchange rate

In parallel with the tightening of monetary policy, the war is eroding the regime's fiscal base. The budget deficit is growing, oil price fluctuations and sanctions against key Russian oil companies (Rosneft, Lukoil) have hit the Kremlin's foreign exchange earnings.^{2 5} Even despite circumventing sanctions through a shadow fleet and discounts for Asia, revenues have become less predictable, and each strengthening of the ruble, as experts note, directly hits the ruble value of export revenues.^{2 5 8} While the Russian Federation's public debt is formally small, the cost of servicing it is growing rapidly against the backdrop of high interest rates, and an increasing part of the budget is going to cover old obligations, rather than to development.^{1 6} .

An additional blow is the depletion of reserves. Part of the gold and foreign exchange reserves is frozen by sanctions, part has already been spent on supporting the exchange rate and fiscal injections, which forces the authorities to look for new sources of filling the treasury through tax increases and "super-profit" fees from businesses.^{2 5 8} . Some reviews describe the Russian environment of 2025–2026 as “high inflation – high income – high risk”, where investors see attractive nominal rates but are not willing to invest in long-term projects due to political and structural unpredictability⁸ In fact, the country lives in a compressed spring mode: any external shock – a drop in oil prices, new sanctions, defeats at the front – can sharply unzip the accumulated imbalances.

The price of "stability" for Russians: poverty without crisis

From the perspective of the average Russian, the picture looks paradoxical. On the one hand, official data and Western analysts acknowledge that the war did not collapse the Russian economy instantly, unemployment is low, salaries in the military sectors are growing, and there are more goods in store windows than in the first months of sanctions.^{3 6 9} On the other hand, incomes have been rising unevenly, inflation is actually eating up a significant part of the increases, and the gap between "military" money and the civilian economy is turning the country into a mosaic of local "thriving garrisons" and suffocating civilian sectors.^{3 6 8} .

Russian economists, cited by independent media, openly talk about the “illusion of growth”: while the war is going on and the state is pouring billions into the defense industry, provincial cities may experience an increase in income and employment, but this is not an investment in the future, but a short peak before the inevitable correction.^{3 6} At the same time, Putin deliberately chose a model that minimizes visible losses for the majority: mobilization is taking place “in a measured manner,” tax pressure is gradually increasing, and large sectoral bankruptcies are still being contained.^{1 6 9} This explains why Russian society in the fourth year of the war does not demonstrate mass protest: the economy suffers indirectly, without the image of a “great catastrophe,” but with creeping impoverishment and loss of development horizons.

Outlook for 2026: Approaching the "war wall"

According to Western sources, the Kremlin's financial bloc has already warned Putin about the risk of a large-scale economic crisis in the second quarter of 2026 if the current course is maintained.^{2 6} . Centers for the Analysis of Sanctions and War Economy note: the combination of high rates, structural labor shortages, the exhaustion of the effect of the reorientation of exports to Asia, and growing pressure on the budget make the current model unsustainable over the horizon of several years.^{3 5 8} According to experts, the Kremlin will inevitably face a choice: either loosen the anti-inflationary noose to restore growth (at the risk of pushing up prices), or cut military spending and “simulate normality,” which is already a politically toxic scenario for Putin.^{1 6 8} .

For Ukraine, the EU, and the US, the conclusion is clear: the Russian economy is not “collapsing on its own,” but it is not an invulnerable monolith either. It is entering a phase where each additional year of war will require ever greater domestic sacrifices, disguised as “fighting inflation” and “stability.”^{3 6 8} And the longer Putin tries to simultaneously finance a protracted war, keep inflation at the “sacred” 4%, and maintain the appearance of normal life for the majority, the more painful the inevitable setback may be – both for the regime and for Russian society, which today prefers not to ask itself the price of this pseudo-stability.^{1 3 6} .

Sources

1. The Moscow Times: "Putin Is Battling Inflation – But Sacrificing Russia's Economy" – an analysis of the Kremlin's anti-inflationary policy, military spending, and its consequences.
2. The Moscow Times: "Russian Inflation Drops Sharply in 2025" - data on a sharp slowdown in inflation against the backdrop of the Central Bank's tough policy and its side effects.
3. ICDS: "Resource Scarcity and War Are Strangling Russia's Economy" - an overview of the Russian Federation's war economy, labor shortages, and inflationary overheating.
4. Free Russia Foundation: "Russian Economy and Sanctions Brief — March 2025" – an analysis of the gap between demand and supply and the role of sanctions in fueling inflation.
5. CSIS: “The Russian Wartime Economy: From Sugar High to Hangover” – a report on the “sugar high” of wartime growth and the coming decline.
6. NV.ua / other independent media: materials about the Russian financial bloc's warning to Putin about the risk of an economic crisis in 2026.
7. RUSI: "Russia's Wartime Economy isn't as Weak as it Looks" - an analysis of inflationary pressures, labor shortages, and hidden imbalances.
8. Eurasia Business News: "Russia's economy indicators for 2025 and 2026" - data on high rates, inflation drivers and risks for investments.
9. NEST Centre: "Russian economy update Q2–Q3 2025" - assessment of the impact of high interest rates on the civilian sector, budget revenues, and the ruble exchange rate.