Russia’s Inflation is Expected to Continue to Soften in October Likely Hitting Below 8.0% y/y
Bottom Line: We expect Russian inflation to continue its decreasing pattern in October thanks to lagged impacts of previous aggressive monetary tightening coupled with softening food prices and decreasing core inflation. October inflation figures will be announced on November 14, and we foresee Yr/Yr prices to surge by around 7.6%-7.9%. Despite fall in inflation; we think it will continue to stay higher than Central Bank of Russia’s (CBR) 4% target in 2026 due to high inflation expectations, adverse effects of the VAT increase coupled with continued surge in military spending. Our 2026 average headline inflation projection stays at 6.1% as the war in Ukraine continues and sanctions dominate.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – October 2025
Source: Datastream, Continuum Economics
After annual inflation edged down to 8.0% y/y in September, we expect the decreasing trend to continue in October thanks to lagged impacts of previous aggressive monetary tightening coupled with softening food prices and decreasing core inflation. We foresee Yr/Yr prices to hike by around 7.6%-7.9% in October. (Note: October inflation figures will be announced on November 14).
It is worth noting that inflation continued to edge down moderately in Q3 thanks to the RUB showing relative resilience particularly after June coupled with lagged impacts of previous monetary tightening. According to CBR’s MPC statement on October 24, the current seasonally adjusted price growth was up to 6.4% in annualised terms in Q3 after 4.4% in 2025 Q2. The similar indicator of core inflation equaled 4.3% after 4.4% in the previous quarter.
Despite inflation will likely ease for the seventh straight month in October, we foresee inflation will continue to stay higher than Central Bank of Russia’s 4% target in 2026 since the country continues to be squeezed by the sanctions and the war in Ukraine. Our 2026 average headline inflation projection stays at 6.1% taking into account that current inflationary pressures are expected to temporarily increase in late 2025 and early 2026 because of a number of factors, including price adjustments and the reaction of inflation expectations to the upcoming VAT rise, as recently noted by the CBR.
Despite CBR predicts annual inflation will decline 6.5%-7% by the end of 2025, and to 4.0–5.0% in 2026 while underlying inflation is expected to reach 4% in 2026 H2, we think this is very unlikely due to proinflationary risks such as high inflation expectations, the effects of the VAT increase, and a possible deterioration in the terms of external trade.
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 is unlikely in the short term.