Economy

Vladimir Putin is running Russia’s economy dangerously hot

Published

11 months ago

December 10, 2023

The history of inflation in Russia is long and painful. Following the revolution of 1917 the country dealt with years of soaring prices, and then faced sustained price pressure in the early period of Josef Stalin’s rule. The end of the Soviet Union, the global financial crisis of 2007-09 and then Vladimir Putin’s first invasion of Ukraine in 2014 also brought trouble. Fast forward to late 2023, as the war in Ukraine nears its second anniversary, and Russian prices are once again accelerating—even as inflation eases elsewhere (see chart).

According to figures published on December 8th, inflation in November was 7.5%, year on year, up from 6.7% the month before. The central bank dealt with a spike in early 2022, soon after Russia invaded Ukraine for a second time. Now, though, officials worry that they may be losing control. At the bank’s last meeting they raised interest rates by two percentage points, twice what had been expected. At their next one on December 15th a similar increase is on the cards. Most forecasters nonetheless expect inflation to keep rising.

Russia’s inflation of 2022 was caused by a weaker rouble. After Mr Putin began his invasion the currency fell by 25% against the dollar, raising the cost of imports. This time currency movements are playing a small role. In recent months the rouble has actually appreciated, in part because officials introduced capital controls. Inflation in prices of non-food consumer goods, many of which are imported, is in line with the pre-war average.

Look closer at Mr Putin’s wartime economy, however, and it becomes clear that it is dangerously overheating. Inflation in the services sector, which includes everything from legal advice to restaurant meals, is exceptionally high. The cost of a night’s stay at Moscow’s Ritz-Carlton, now called the Carlton after its Western backers pulled out, has risen from around $225 before the invasion to $500. This suggests that the cause of inflation is home-grown.

Many economists blame government outlays, which are soaring as Mr Putin tries to defeat Ukraine. In 2024 defence spending will almost double, to 6% of GDP—its highest since the collapse of the Soviet Union. Mindful of a forthcoming election, the government is also boosting welfare payments. Some families of soldiers killed in action are receiving payouts equivalent to three decades of average pay. Figures from Russia’s finance ministry suggest that fiscal stimulus is currently worth about 5% of GDP, a bigger boost than that implemented during the covid-19 pandemic.

This, in turn, is raising the country’s growth rate. Real-time economic data published by Goldman Sachs, a bank, point to solid growth. JPMorgan Chase, another bank, has lifted its GDP forecast for 2023, from a 1% decline at the start of the year, to 1.8% in June and more recently to 3.3%. “Now we confidently say: it will be over 3%,” Mr Putin recently boasted. Predictions of a Russian economic collapse—made almost uniformly by Western economists and politicians at the start of the war in Ukraine—have proven thumpingly wrong.

The problem is that the Russian economy cannot take such rapid growth. Since the beginning of 2022 its supply side has drastically shrunk. Thousands of workers, often highly educated, have fled the country. Foreign investors have withdrawn around $250bn-worth of direct investment, nearly half the pre-war stock.

Red-hot demand is running up against this reduced supply, resulting in higher prices for raw materials, capital and labour. Unemployment, at less than 3%, is at its lowest on record, which is emboldening workers to ask for much higher wages. Nominal pay is growing by about 15% year on year. Companies are then passing on these higher costs to customers.

Higher interest rates might eventually take a bite out of this demand, stopping inflation from rising more. An oil-price recovery and extra capital controls could boost the rouble, cutting the cost of imports. Yet all this is working against an immovable force: Mr Putin’s desire to win in Ukraine. With plenty of financial firepower, he has the potential to spend even bigger in future, portending faster inflation still. As on so many previous occasions, in Russia there are more important things than economic stability. ■

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

7 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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