Russia's Central Bank Sharply Worsens Inflation Forecast Due to Fuel Crisis
Russia's Central Bank has raised its inflation forecast for this year to 6-7% while lowering GDP growth projection to 0-1%. The fuel price surge, triggered by the shutdown of 10 oil refineries and drone attacks on logistics hubs, could push inflation to 8-9% by year-end.
The Central Bank of Russia (CBR) has significantly downgraded its macroeconomic forecast, citing the ongoing fuel crisis as the primary cause. According to the new projection, inflation this year will be 6-7%, up from the April forecast of 4.5-5.5%. Even the best-case scenario of 6% is worse than the previous worst-case forecast of 5.5%.
At the same time, the CBR has cut its GDP growth forecast to 0-1%, compared to the previous 0.5-1.5%. Central Bank Governor Elvira Nabiullina stated at a press conference that rising fuel costs are beginning to affect a wide range of goods and services. She noted that 10 oil refineries have been shut down in the last two months, causing oil processing in Russia to fall to a 20-year low.
Fuel inflation reached 25% by mid-July, the highest since 2010. This surge has driven the overall consumer price index up: from 5.3% in May to 6% in mid-July. According to the CBR's forecast, inflation could accelerate further by the end of the year.
Additional upward pressure on prices comes from Ukrainian drone attacks on Wildberries logistics hubs. According to Bloomberg Economics economist Ekaterina Vlasova, companies will have to increase spending on security and logistics, which will eventually be passed on to consumers.
Economist Igor Lipsits does not rule out that the fuel shortage alone could push inflation to 8-9% by year-end. A particular issue is the lack of diesel for farmers, which could force reductions in sown areas and livestock. This could lead to higher food prices next year.
The government has begun taking steps to stabilize the fuel market. Nabiullina said that under the baseline scenario, production capacities are expected to gradually recover by the end of the year.
