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A senior Russian minister has warned that the country faces economic "hypothermia" due to surging inflation and the effects of soaring military spending to fund the invasion of Ukraine. As Vladimir Putin seemingly refuses to sit down for peace talks, his government's Economy Minister Maxim Reshetnikov called for urgent action from Russia's central bank.
According to a forecast from the Bank of Russia (CBR), annual inflation "will decline to 7.0 to 8.0% in 2025, and return to 4.0% in 2026 and stay at the target further on", however the interest rate set by the bank remains high at 21%, compared to 4.25% in the UK and the US. Meanwhile, inflation rates in the UK are hovering around 3.5%.
High interest rates mean higher borrowing costs for businesses and households, as well as government agencies, potentially slowing economic growth. At the same time, high inflation rates mean goods and services can start to cost more than people can afford, and raw materials and fuel also become more expensive.
In August 2023, the central bank made an unscheduled, 350-basis-point rate hike the day after receiving a public rebuke from President Vladimir Putin's then economic adviser Maxim Oreshkin, blaming what he called its soft monetary policy for weakening the rouble.
Then in March this year Putin urged his economic officials not to freeze the Russian economy as if it were in a "cryotherapy chamber" with high borrowing costs, which many analysts interpreted as a call to start an easing cycle.
Reshetnikov, speaking on Monday in the State Duma, Russia's lower house of parliament, said that inflation in recent weeks had been in the 3-4% range when recalculated in annual terms.
"We expect that May data will consolidate this trend and we of course expect that the central bank will duly take this into account when taking decisions because we also see risks of economic hypothermia in the current regime," Reshetnikov said.
The ministry forecasts annual inflation for 2025 at 7.6%, an estimate that Reshetnikov described as "realistic".
Major Russian exporters including Rusal and Gazpromneft have cut the planned volume of commodities such as metal and oil products they send by rail, a Russian Railways document seen by Reuters showed last week, demonstrating the real-world impact of subdued demand as the country's economy slows.
On Monday, Mr Reshetnikov said that in recent weeks, inflation had been in the 3% to 4% range when recalculated in annual terms, but he admitted forecasts for annual inflation in 2025 at 7.6% were "realistic."
He said: "We expect that May data will consolidate this trend and we of course expect that the central bank will duly take this into account when taking decisions because we also see risks of economic hypothermia in the current regime."
The finance minister's comments echo those of President Putin, who called on officials in March not to freeze the nation's economy with high borrowing costs that would put it into a "cryotherapy chamber".
Meanwhile, Russia's energy giant Gazprom has reported beginning to slash cargo volumes, forcing the country's railway network to pull back on investment plans. It's reported that Freight volumes dropped 6.8% in early 2025, following "a 15-year low in 2024."
Kyrylo Shevchenko, a former chief of the Ukrainian National Bank, took to X, formerly Twitter, to express his happiness at Russian financial woes.
He wrote: "Russia's rail traffic is shrinking. Gazprom is slashing cargo volumes, pushing Russian Railways to cut 2025 investment plans by $408M.
"Freight volumes dropped 6.8% in early 2025, following a 15-year low in 2024.
"Imagine, even exports to China are falling due to bottlenecks in Russia’s eastern network. Sanctions, sky-high interest rates (21%), and Russia still chooses to casually attack Ukraine's railways or the network's energy infrastructure as if it would solve their real problems."
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