Russian economy meltdown as gas and electricity bills soar 40% and mortgage rates rocket

Russians face soaring utility bills and stubborn inflation as Putin continues to wage war on Ukraine (Image: Getty)

Russia is on course for a "painful economic squeeze" with energy bills set to soar 40% by 2028, stubbornly high inflation and real wages stagnating, a Ukrainian former central banker has said. Kyrylo Shevchenko, a former Head of the National Bank of Ukraine, claimed gas bills would rise more than 76% since Russia's full-scale invasion of Ukraine in February 2022.

He didn't point to a source for his claim, which was posted on X on Friday (May 2) and included a further prediction that "sharp hikes" in the cost of gas, electricity and housing overall would soar 40% in three years. Mr Shevchenko said: "With real wages stagnating and inflation rising, Russians will pay more for less — while the Kremlin pours billions into war.

"To make matters worse, Russia slashed its 2025 oil price forecast to $56/barrel — the lowest since COVID-19. Russia is burning through its future to sustain war. And of course, the people are footing the bill". Russian media reports also suggest a sharp rise in people defaulting on their mortgages and consumer loans in the first three months of the year.

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The Moscow Times reports that the volume of mortgage loans showing signs of distress between January and March surged 90% at Sverbank to reach £2.6billion (285bn rubles).

Overdue consumer loans increased 22.5% to £5.6bn (610bn rubles), according to the same publication.

Russia's rate of inflation rose to 10.3% in March, according to Trading Economics, and the country's central bank warned that it could continue to increase.

Food inflation stood at 12.4% with the rate of fruit and veg price rises a staggering 18.9%, spelling misery for Russian consumers.

Russia's inflation remains stubbornly high despite interest rate hikes by the country's central bank. In April, the Bank of Russia kept its key rate at 21%, warning that monetary policy would remain tight as demand was still "significantly" outstripping the supply of goods and services.

The Bank said a "cooldown" in lending and households increasing their savings would help support a drop in inflationary pressures over the coming months.

But it also cautioned that over the medium term a further slowdown of the global economy and decrease in oil prices amid escalating trade tensions may have the opposite effect, increasing inflation.

Demand for oil has suffered in the wake of the trade war sparked by US President Donald Trump's sweeping tariffs on foreign goods entering the United States.

The price of oil fell by more than 11% last month, upsetting the Kremlin's budget calculations for this year.

Despite this, Russia's Finance Minister Anton Siluanov has insisted defence spending won't be affected.

The finance ministry raised its 2025 budget deficit estimate to 1.7% of GDP this week from 0.5%. That rise came amid a 24% slashing of forecast energy revenues due to expectations of a prolonged period of low oil prices.

Russia's inflation rate is above 10% (Image: Getty)

Russia's spending on the war in Ukraine has not only fuelled the growth of its economy but led to it overheating and sent inflation above 10%.

While the country's GDP shrank 1.2% after Russia launched its full-scale invasion of Ukraine, it rebounded by 3.6% in 2023 and 3.8% in 2024, driven by raised levels of government spending.

However, current projections from the International Monetary Fund show economic growth slowing to 1.4% this year and 1.2% in 2026.

Experts put this down to labour shortages, the impact of sanctions on Russia's foreign trade and rising prices.

While Russia's economic signals are flashing red, the state of the country's economy doesn't appear to be forcing the Kremlin to the negotiating table in a rush to end the war.

However, the Trump administration is reportedly drawing up fresh sanctions against Russia's banking sector and energy giant Gazprom which threaten to further squeeze the economy.