While President Vladimir Putin has proclaimed the strength and balance of Russia’s wartime economy, capable of providing both guns and butter, the reality on the ground is painting a different picture. The cost of butter, a staple in the Russian diet, has soared, reflecting the broader inflationary pressures gripping the country.
According to Russia’s state statistics service, the price of a block of butter has surged by 25.7% since December. Reuters reporters have observed a 34% increase in the price of a pack of high-grade butter in Moscow since the beginning of the year, now costing 239.96 roubles ($2.47). This dramatic price hike has sparked concerns among economists and consumers alike.
“The Armageddon with butter is escalating; we wouldn’t be surprised if butter repeats last year’s situation with eggs,” warned economists on Russia’s popular MMI Telegram channel, recalling an earlier spike in egg prices that had alarmed consumers.
The escalating butter crisis has led to a worrying trend: butter thefts in supermarkets. Russian media report that some retailers have resorted to placing individual blocks of butter inside plastic containers to deter shoplifting, a testament to the desperation driven by rising prices.
The Russian authorities, keen on ensuring the war in Ukraine doesn’t significantly impact everyday life, are closely monitoring the situation. Dmitry Patrushev, the deputy prime minister responsible for agriculture, announced on October 23rd that the government would actively monitor butter prices. He convened meetings with major dairy producers and retailers, pledging to increase imports to alleviate the shortage.
The rise in butter prices is intertwined with a broader upward trend in the cost of essential goods. Milk prices have also soared, as have wages, interest rates, fuel, and transportation—all key inputs for butter production. While imports from Belarus are not sufficient to meet the demand, Russia is looking to Turkey, Iran, and even India to bridge the gap, according to Russian media reports.
Putin has consistently emphasized the resilience of Russia’s wartime economy, highlighting the relationship between ‘cannons’ and ‘butter’ after appointing an economist, Andrei Belousov, to head the defense ministry earlier this year. Despite the imposition of the most severe Western sanctions ever levied on a major country, Russia’s $2 trillion economy has outperformed expectations.
Shortly after the invasion of Ukraine in 2022, Western economists predicted a swift collapse of the Russian economy. However, despite the sanctions, Russia’s economy grew faster than the United States and most major European countries. However, the current economic landscape is evolving, with inflation and interest rates rising. On October 25th, the central bank hiked interest rates by 200 basis points to 21%, the highest level since Putin’s first term in 2003, in response to the escalating inflation.
The central bank predicts inflation to reach 8.0-8.5% this year. Russia’s commitment to the war in Ukraine has resulted in a significant increase in defense spending, surpassing Cold War-era levels. This heightened military expenditure, while contributing to economic growth, is also fueling inflation. The International Monetary Fund forecasts a 3.6% growth for the Russian economy this year.
Jim O’Neill, the former Goldman Sachs chief economist known for coining the ‘BRICs’ term in 2001, has expressed concerns about the sustainability of Russia’s economic trajectory, attributing the current situation to the substantial defense spending. “It’s all because of enormous Russian defense spending,” O’Neill told Reuters, highlighting his view on the overall macroeconomic picture. “So I think the medium term outlook to long term outlook is quite bleak.” ($1 = 97.2455 roubles).
