As the conflict in Ukraine persists, Russia's economy is facing significant challenges, including a troubling rise in food prices and reports of thefts from supermarkets. Notably, the price of butter has surged by 25.7% since December 2023, far exceeding the official inflation rate of 8.6% [79e99dec]. This spike in butter prices is part of a broader trend, with the cost of a pack of 'Brest-Litovsk' high-grade butter in Moscow increasing by 34% since the beginning of 2024, now priced at $2.47 [79e99dec].
The economic strain is further illustrated by incidents of butter theft, including a recent case where two masked men stole 20 kg of butter from a supermarket [79e99dec]. The food producer union Rusprodsoyuz has reported that the price of 1 kg of butter has reached $10.66, marking a 20% increase since January 2024 [79e99dec]. This situation echoes last year's egg crisis, with economists warning that the ongoing military expenditures under President Vladimir Putin are exacerbating the economic turmoil [79e99dec].
In addition to rising food prices, Russia's economy is grappling with a potential 'massive credit crunch' that could undermine its military efforts. Recent reports indicate that the Kremlin has canceled a £5 billion bond auction due to a lack of buyers, reflecting growing investor concerns [953b90ee]. The Russian Government Bond Index (RGBI) has fallen to its lowest level since sanctions were imposed in 2022, with construction firms' bonds losing 4-5% in value [953b90ee].
The Russian government has significantly increased its military budget from £39 billion in 2021 to an anticipated £93 billion in 2024, which raises questions about the sustainability of such expenditures amid a projected budget deficit of 1.1% of GDP for 2024 [953b90ee]. Inflationary pressures are evident, with butter prices rising sharply, further straining consumers [953b90ee].
Russia's reliance on imports for essential goods, including butter from Turkey and the UAE, highlights vulnerabilities in its supply chains. Additionally, a unique trade deal with Pakistan involving the exchange of chickpeas for mandarin oranges demonstrates the lengths to which Russia is going to secure food supplies [953b90ee].
The broader economic landscape remains challenging, with estimates suggesting that international sanctions are reducing Russia's GDP by 2-3% annually. Despite a projected GDP growth of +3.8% for 2024, high interest rates at 21% have led to warnings from business leaders about the risks of bankruptcy for many companies [7fffb374][01841bb1].
As the economic situation evolves, analysts predict turbulent times ahead for the Kremlin, suggesting that the combination of rising military expenditures, inflation, and a credit crunch could significantly undermine Russia's war efforts against Ukraine [953b90ee]. The interplay between these economic challenges and military strategy will be crucial as the conflict continues into 2025 and beyond [7fffb374][5473bd90].