Russia: Waiting for Inflation? | Econbrowser

I found this paragraph from a Re:Russia article of interest:

The macroeconomic situation in 2023 will be fundamentally different to that of 2022. 2022 was the year of import sanctions, the destruction or adjustment of existing supply chains and the construction of alternative chains in the face of excess financing and inflows of foreign exchange earnings. 2023, on the other hand, will be a year of relatively adjusted supply chains, but it will also be a year of declining export revenues and an influx of foreign exchange financing in the face of persistent budget deficits. In this sense, 2023 will more closely resemble a typical international crisis (what we call a ‘sudden stop’), with a decline in capital inflows, devaluation pressures and growing problems with financing the entire economy – both in terms of banking and production.

So far (measured) inflation has been quiescent, relatively speaking, in Russia. This article by Oleg Vyugin,  Evsei Gurvich, Oleg Itskhoki, and Andrei Yakovlev suggests that as revenues decline, Russia will be forced more and more to financing a big deficit using money financing.

Ken Rogoff argues that the sanctions have so far been ineffective because of limited implementation of secondary sanctions.

Hence, 2023 may be the year to further tighten the constraints on the Putin regime, by putting into place widespread secondary sanctions. This will further reduce access to critical and noncritical imports as well as  output capacity, thereby increasing inflationary pressures. Hence, we might see much faster inflation than the current (as of February) reported inflation rate of 11.8% y/y.

This entry was posted on by Menzie Chinn.

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