Without targeted policy action, Russia risks slipping into a self-reinforcing inflationary spiral, even as monetary policy remains tight and increasingly ineffective. To mitigate these risks, at least in part, a series of bold decisions will be required. They are likely to face resistance from powerful economic players with strong lobbying influence
Yet this may be the lesser of two evils. Continued efforts by the Central Bank to counter inflationary pressures beyond its control risk, at best, prolonged stagnation and, at worst, a recession. The Centre for Macroeconomic Analysis and Short-Term Forecasting has called for limiting tariff increases by natural monopolies and supplying cities with agricultural produce directly, bypassing intermediaries.
The so-called ‘quiet period’ ahead of a key rate meeting, a seven-day stretch during which the Central Bank refrains from public comment to avoid influencing markets, is typically an opportune time for expert forecasts and recommendations. However unconventional they may be, the regulator will not respond until the meeting itself.
The Centre for Macroeconomic Analysis and Short-Term Forecasting, whose reports are circulated to the Presidential Administration, the Government and relevant ministries, has published a new instalment of its analytical monitoring series on economic trends. This time, it focuses not only on inflation but also on the policy measures needed in light of what experts see as an increasingly ineffective monetary policy.
Russia has developed what analysts describe as a ‘fragmented’ model of inflation, in which prices for certain goods and services, as well as some inflationary costs, are relatively insensitive to the Central Bank’s measures.
What is theoretically a single inflationary process has in practice proved far from uniform, the Centre for Macroeconomic Analysis and Short-Term Forecasting said, citing rapidly increasing petrol prices, regulated services and household services as examples
This, in the terminology of CMASF Deputy Director Dmitry Belousov, is the first factor weakening the effectiveness of the Central Bank’s monetary efforts to curb inflation
The second factor is the combination of high corporate indebtedness and local monopolistic power among large companies. In some cases, higher key rates, instead of substantially slowing inflation as intended, lead to additional costs arising from higher interest payments, rents and leasing rates being passed through into final prices.
According to the monitoring, the Central Bank’s restrictive stance could trigger a new wave of inflation, potentially accompanied by prolonged stagnation at best and a recession at worst. Nezavisimaya Gazeta has previously highlighted the risk of a ‘sticky recession’ amid a fuel crisis, also drawing on CMASF findings (see the issue of 16 July 2026).
‘Constraints on output are not only being felt today but are being pushed into the future. If companies fail to upgrade their equipment, they will eventually face, at a minimum, the obsolescence of their production base and, at worst, the loss of production capacity,’ Dmitry Belousov warned.
The expert also notes, with some surprise, what he sees as the Bank of Russia’s failure to recognise a key point: potential GDP growth depends in part on production capacity, which in turn is shaped by investment in machinery and equipment made today
Under tight monetary policy, however, private investment in machinery and equipment has taken the brunt of the hit. Such investment has been declining since mid-2025 on a seasonally adjusted basis, the report notes.
‘As a result, consumer demand that the market will face over the next one to three years will increasingly be met either through imports, implying depreciation pressures and higher inflation, or through inflation itself,’ Belousov warned.
According to the analysis, this creates a feedback loop in which the Central Bank, lacking alternative tools, is forced to raise interest rates again. That, in turn, weighs on investment and economic growth, further reinforcing inflationary pressures in the next cycle.
ORIGINAL: NG/Middlemen and natural monopolies’ interests take a back seat
