September 1st, 2014
Written by Michael Moon, GEI Associate
Russian State Statistics Service, the governmental statistics agency in Russia, reported Wednesday that the prices of various foods under embargo are rising. This predicted result comes a few weeks after Russia imposed embargo on food imports from the United States, members of the European Union and allied nations in early August in response to the sanctions put on Russia's state-owned banks, energy companies, and defense firms since March. The ban covers meat and poultry, fish, dairy products, fruits and vegetables.
In just one week, the price of chicken rose by 1.4 percent, pork by 0.9 percent, frozen fish by 0.5 percent and cheese by 0.4 percent. Overall, prices rose by 0.2 percent when also including the week immediately following Russia's embargo. This trend of inflation poses a great economics threat to Russia, pushing the country even closer to a recession. Analysts warned that Russia's annual inflation rate may reach as far as 8 percent, greatly above the Russian Central Bank's target rate of 4.5%. Such a large spike in inflation opens the doors for the rapid devaluation of the ruble and consequently a sharp interest rate hike.
Here is the current Russian Consumer Price Index inflation during 2014, measured on a yearly basis for each month (for example, January 2014 indicates the yearlong inflation rate since January 2013):
Note the upward incline that began with the first round of U.S. and EU sanctions in March.
Some remote regions in Russia were hit the hardest by the embargo. Russian daily newspaper Kommersant reported that wholesale prices for chicken legs on Sakhalin Island in Russia's Far East rose by an astounding 60 percent, while the cost of meat rose by 26 percent and fish by 40 percent in Primorsky region. What sets regions like Sakhalin Island apart is that they rely purely on imports for food because they do not have weather conditions fit for growing their own.
Whether Putin anticipated the economically threatening results of its embargo is unclear, but it serves as a warning for him and his actions in Ukraine that are not only drawing immense opposition from around the world but are hurting his own citizens. Considering his rock-hard adamancy reflected in his numerous decisions this year, it is safe to assume that he will neither negotiate nor back down on any issue any time soon and to conclude that the future looks grim for the Russian economy.
Embargoed Food Prices Continue to Grow in Russia - State Statistics Service (RIANOVOSTI, 27 August 2014)
Food imports ban backfires on Russia's economy (DW.DE, 29 August 2014)