Russia Grapples with Inflation Amid VAT Hike and High Interest Rates

Russia's central bank is monitoring rising prices caused by a VAT increase aimed at boosting the state budget. The Kremlin maintains confidence in macroeconomic stability despite inflation exceeding the forecast range. High interest rates persist, impacting consumers and businesses, while inflation expectations remain elevated.

Amid growing concerns over inflation, Russia's central bank is closely overseeing the economic landscape following a recent hike in value-added tax (VAT). This increase, aimed at bolstering the state budget in light of military expenditure and declining oil revenues, raises the VAT rate to 22% as of January.

Kremlin spokesperson Dmitry Peskov reassured reporters on Tuesday that the situation remains under control, indicating no immediate concern that inflation would surpass the central bank's expectations of 4-5%. 'The central bank is vigilant and proactive in ensuring macroeconomic stability,' stated Peskov.

Despite ongoing challenges, including high interest rates of 16%, consumer prices saw a rise of 5.59% over the past year. Analysts are divided on whether the central bank will reduce the rates in its upcoming meeting on February 13, as inflation expectations stay high among households.

(With inputs from agencies.)