Report
Even if there is no imported inflation in Russia, there will be inflation caused by excess money creation
The war in Ukraine requires a sharp increase in public spending in Russia (military spending, support for households and companies in difficulty, etc.). Given the level of interest rates, the additional public spending will be financed by money creation (roubles): Either the excess of roubles will lead to capital outflows, a sharp depreciation of the rouble’s exchange rate and imported inflation; Or, because of capital controls, these roubles will remain in the country, fuel demand for goods and services and lead to domestic inflation, especially as supply constraints reduce the supply of goods and services. In both scenarios, inflation will be very high in Russia, whether imported or domestic, and Russians’ real income will fall sharply.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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