Russia’s Inflation Decelerated Sharply in December but Risks Remain
Bottom Line: After edging down to 6.6% y/y in November, Russian inflation continued its decreasing pattern in December and stood at 5.6% y/y owing to lagged impacts of previous aggressive monetary tightening and relative resilience of RUB, the State Statistics Service (Rosstat) said. Despite Central Bank of Russia (CBR) predicts annual inflation to decline to 4.0–5.0% in 2026, our 2026 average headline inflation projection stays at 6.2% due to inflationary risks.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – December 2025
Source: Continuum Economics
After annual inflation edged down to 6.6% y/y in November, the decreasing trend continued in December and stood at 5.6% y/y owing to lagged impacts of previous aggressive monetary tightening and relative resilience of RUB.
The Ministry of Economic Development mentioned in its inflation review that "In monthly terms, consumer prices decreased by 0.3% in December. Monthly food prices edged down by 0.4% while services prices softened by 0.2%."
Despite CBR predicts that annual inflation will decline to 4.0–5.0% in 2026 and underlying inflation will reach 4% in H2 2026, we continue to believe reaching 4%-5% target band will be tough in 2026 since cooling off inflation will take longer than CBR anticipates due to sanctions, adverse effects of the VAT increase and administered prices coupled with continued surge in military spending. (Note: Highlighting upside risks to the inflation, CBR also emphasized in its written MPC statement on December 19 despite underlying measures of current price growth declined, inflation expectations have edged up in recent months and lending activity remained high).
Our 2026 average headline inflation projection stays at 6.2%. We think pro-inflationary risks still prevail over disinflationary ones in the mid-term horizon. (Note: Rosstat has said inflation was 1.26% in the period January 1-12, 2026. Annual inflation quickened to 6.3% as of January 12, due partly to the VAT hike from 20% to 22% on January 1, 2026). We believe a peace deal in Ukraine remains the real key to ease pressure on inflation and alleviate demand-supply imbalances in Russia.