Exceeding Expectations: Russia Inflation Eased Fast to 6.6% y/y in November
Bottom Line: Russian inflation continued its decreasing pattern in November and edged down to 6.6% owing to lagged impacts of previous aggressive monetary tightening, and relative resilience of RUB despite food and services prices continued to surge in November. We think the inflation will continue to stay higher than Central Bank of Russia’s (CBR) 4% target due to sanctions, adverse effects of the VAT increase coupled with continued surge in military spending. Our 2026 average headline inflation projection stays at 6.2% as the war in Ukraine continues and sanctions dominate.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – November 2025
Source: Datastream, Continuum Economics
Rosstat announced November inflation figures on December 10. After annual inflation edged down to 7.7% y/y in October, the decreasing trend continued fast in November and inflation hit 6.6% y/y exceeding expectations owing to lagged impacts of previous aggressive monetary tightening coupled with RUB’s relative resilience.
Monthly CPI rose by 0.4% in November after a rise of 0.5% the previous month. Annual cose inflation stood at 6.1% in November. Food prices surged by 0.7% m/m and 7.5% y/y while the prices of services edged up by 0.4% m/m and 9.4% y/y.
Despite inflation eased for the eighth straight month in November, we expect the inflation will continue to stay higher than CBR's 4% target since the country continues to be squeezed by the sanctions, coupled with adverse effects of the VAT increase, and surge in military spending. The inflationary risks include planned tax increases, a possible deterioration in the terms of external trade and higher utility tariffs. Our 2026 average headline inflation projection stays at 6.2%.
It is worth noting that President Putin recently approved raising the value-added tax (VAT) to 22% from 20% next year. Speaking about VAT hike, Finance Minister Anton Siluanov said on December 9 that VAT hike aims to fund soaring defense and security spending is expected to drive consumer prices up by around 1% next year.
Our 2026 average headline inflation projection stays at 6.2% taking into account that current inflationary pressures are expected to temporarily increase early 2026. We believe a peace deal in Ukraine is the real key to ease pressure on inflation and alleviate demand-supply imbalances in Russia despite sealing a full-scale peace deal in Ukraine remains unlikely in the short term.