The Russian federal government will increase minimum wages and pensions from June 1 as it seeks to counter the effects of double-digit inflation, which is closely linked to Western sanctions.
Inflation in Russia was 17.83% on an annual basis in April, according to official statistics, and 1.14% on a monthly basis.
The United States, the United Kingdom and the European Union have imposed sanctions on Russia and Russian citizens and legal entities, and while some are largely symbolic, such as banning high-ranking officials from traveling to certain countries, others are targeting Russia’s economy.
Many Western companies have left as a result of the sanctions, as well as reputational pressure, which is contributing to the adverse effects of sanctions on Russia.
But this effect does not seem as serious as the perpetrators of the sanctions might have hoped.
A recent report by the Financial Times notes that many Russians are employed by the state. This would mitigate any potential blow from the exit of Western companies from the labor market.
In addition, inflation has begun to decline, notes the FT, suggesting that the worst of the effects of sanctions is coping.
However, the future remains uncertain now that the EU has agreed, albeit in principle, to almost completely suspend Russian oil imports by the end of the year.
There were internal disagreements over the EU’s oil ban, but the bloc agreed to make concessions to Hungary, Slovakia and the Czech Republic, excluding imports from the Druzhba pipeline from the embargo proposal.
Earlier this month, Russia’s VEB bank predicted that even if the government raised minimum wages and pensions by 10 percent, it would not be enough to fully offset the effects of higher inflation on household incomes.
That could only soften it, the bank said, with real disposable income likely to fall by 7.5 percent and real wages down 6 percent this year.
By Charles Kennedy for Oilprice.com
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