Russia's economy in recession: inflation rises, fuel shortages worsen

Domestic and front-line difficulties

Russia's economy is in recession, accompanied by high inflation and a severe fuel shortage. Low unemployment signals not prosperity but a labor deficit. Meanwhile, the Russian army has failed to achieve significant gains in Ukraine, with casualties mounting, raising the need for a new mobilization.

Ukrainian drone and missile strikes increasingly hit deep inside Russia, including Moscow and St. Petersburg, damaging military industry and energy infrastructure. This has led to a comprehensive fuel deficit. Crimea has already introduced a state of emergency.

Central bank and government dispute

The Russian government and central bank disagree on interest rate policy. The central bank opposes a significant rate cut to curb inflation, while the government, with President Vladimir Putin's blessing, wants lower rates to avoid public discontent. Experts say Russia's economy has become a money-printing machine, driving inflation and unsustainable.

According to Bloomberg, gasoline prices in Russia rose 3% in the week of June 16-22 to $0.95 per liter – the largest weekly increase in at least 20 years. Gasoline production dropped 15% from June 2025. Annual inflation in June 2026 rose from 5.3% to 5.8%.

Reuters reports that military spending is overheating the economy, with official growth forecasts cut from 1.5% to 0.4%. Putin denies the problems, claiming the slowdown is normal after previous years' growth.

Propaganda masks the truth

Russian propaganda shows, such as "60 Minutes," barely discuss internal difficulties. The state of emergency in Crimea received only a few minutes, while a segment on Jūrmala claiming the city is empty and touristless lasted 20 minutes. False information was also spread about a Ukrainian drone hitting a train from Riga to Daugavpils, although the train fire occurred a day and a half before the drone fell.

Nika Aleksejeva, a researcher at NATO StratCom, notes that Russia's aggressive rhetoric stems from weakness. The Kremlin aims to distract from internal problems while creating a sense of insecurity in the Baltic states and reducing support for Ukraine.