Inflation in Russia has fallen by 30% over the past year, while economic growth has slowed fourfold. Such are the results of the Central Bank’s tight monetary policy. Persistently high borrowing costs in Russia are triggering a sharper drop in production than they are slowing price growth. This is exactly what ordinary consumers are seeing today. Economists have confirmed what we are seeing: output is declining across a wide range of goods, from poultry sales to the production of washing machines and refrigerators. According to analysts at the Stolypin Institute, the Central Bank’s high key rate is more likely to deepen the downturn than to curb inflation.
Over the past year, the Central Bank’s ultra-tight monetary policy has triggered a collapse in the car market, curtailed mortgage lending, and led to a decline in investment and overall demand.
Since 2024, economic growth in Russia has slowed from 4.3% to 1% per year. At the same time, investment in fixed capital declined by 2.3% in 2025, according to Rosstat estimates, after expanding by 8.4% in 2024. Monetary policy has therefore led to an investment downturn and the near disappearance of economic growth. But what has happened to inflation? Between 2024 and 2025 it fell from 9.5% to 6.8%, meaning the pace of retail price growth declined by roughly 30%. Yet not all of this slowdown can be attributed to the Central Bank’s ultra-tight policy. On January 1, 2025 there was a fundamental shift in exchange-rate policy: the Russian authorities abandoned their strategy of weakening the rouble and moved towards strengthening it. In the final analysis, this has produced a near rout in the economy alongside far more modest success in curbing inflation.
Analysts at the Stolypin Institute examined the reasons for this disappointing outcome by comparing price dynamics, sales and production across more than 200 product groups that are either imported into or manufactured in Russia.
In Russia’s industrial sector, cost-push inflation predominates, affecting 45–50% of all product groups produced. In other words, in roughly half of all industries production costs are rising, with manufacturers passing these increases on to prices while output itself is not growing but declining.
The situation on the consumer market is different. For roughly 40% of all goods, demand continues to grow despite rising retail prices. Both sales and prices are increasing simultaneously for a number of staple food products. For example, poultry sales rose by 7% while retail prices increased by 4.7%. Sales of bread and bakery products grew by 25% alongside a 10.3% rise in prices. Confectionery products became 8.8% more expensive in 2025, while their sales increased by 6.4%. A similar pattern of demand-driven inflation can be observed in the markets for clothing, medicines and medical goods.
Deflation and decline (when both prices and sales fall) affect about 24% of product groups. This includes almost all household appliances and electronics. For example, television prices fell by 10.2%, while their sales declined by 1.6%. Refrigerator prices dropped by 6.3%, yet their sales fell by 14.8%. Falling prices for such goods are not stimulating higher sales, indicating a structural contraction in demand in these product categories.
The analysts’ key conclusion is that inflation in the Russian economy is not predominantly monetary in nature, the kind that can be tackled with high interest rates and the suppression of demand. According to the latest available Rosstat data (for January to November 2025), for 75–80% of industrial goods, price increases are not accompanied by rising production volumes. On the consumer market, the share of goods for which higher prices coincide with falling or stagnant sales is about 60%.
Demand-driven inflation, the type typically tackled through higher interest rates, is concentrated in specific segments of both industry and the consumer market. In industry, it is largely linked to government procurement and, in some cases, to import substitution. On the consumer market, it affects a range of staple foods and essential goods.
For most of trade and manufacturing, however, cost-push inflation is the dominant factor, and this is precisely what higher interest rates tend to aggravate. For the bulk of the Russian economy, raising the key rate increases costs while having little impact on demand. A higher cost of credit does nothing to reduce producers’ spending on raw materials, logistics or imported components. At the same time, the Central Bank’s high rate raises borrowing costs, making investment and working capital financing more difficult, analysts say. The high key rate also further suppresses demand in sectors already experiencing deflation or decline, including household appliances, cars and furniture. In these sectors, economists argue, expensive credit only deepens the crisis.
To slow price growth in Russia, what is needed is not tight monetary policy but a set of structural measures aimed at reducing production costs. Priority should be given to policies designed, in particular, to lower producers’ logistics and energy costs and to support investment in expanding capacity in sectors experiencing demand-driven inflation, the Stolypin Institute says. In addition, analysts suggest supporting positive supply-side trends where output is rising while prices are falling, notably among producers of vegetables, eggs and certain industrial goods.
Origin: NG.RU / Производство в России падает быстрее, чем сокращается инфляция
