The Russian economy is in chaos after the collapse of the rouble as panic buyers on a spending spree emptying shops of imported goods.
The cost of foreign goods has rocketed as the rouble continues to slump in value.
Huge queues wait outside shops stocking international brands; worried savers are emptying bank cash machines and customers stock piling food.
Their fear is prices are only going to increase as a complicated combination of economic and political factors begin to bite on stubborn President Vladimir Putin’s policies.
Prices have soared by 25% in just a few months, triggered by the unfortunate juxtaposition of the annexation of The Crimea from Ukraine and falling oil prices.
Self-inflicted sanctions
Russia’s economy is hugely dependent on exporting huge oil and gas reserves, but the price of a barrel of oil has dropped from more than $100 to around $55 in the past few months.
This has hit the Russian economy hard as spending was based on the higher price.
Alongside the worry about the price of oil, the Kremlin is also grappling with self-inflicted sanctions from the USA and Europe over the altercation in The Crimea. One of these sanctions is a ban on exporting foodstuffs to Russia, which is leading to shortages and fuelling price rises.
Reportedly, the cost of pork and salt have risen 25%.
Multinational companies have suspended online sales in Russia and closed shops. Apple was selling the latest iPhone for almost 40,000 roubles – about £433.
However, in line with many other foreign brands, Apple imports and sales have been suspended because rising prices are outpacing supply.
IKEA, General Motors, Jaguar, Land Rover, and Audi have all suspended exports to Russia as the falling rouble devalues the price of their goods.
Currency stress
Recent indecision over how to tackle the financial crisis has seen interest rates surge to almost 20% and the rouble has reached record highs of 80 to the US dollar, 92 to the Pound and 100 to the Euro.
Alexander Moseley, a senior portfolio manager dealing with emerging market debt at financial firm Schroders, said: “The rouble is in the middle of a full-blown crisis. This will only end when the central bank takes policy steps to support the rouble or the other sources of stress end.
“It’s difficult to see the problems in the Ukraine sorting out quickly and the price of oil is likely to stay low for some time, so the only option is for the central bank to step in with positive action.
“Unfortunately this may only stem the tide rather than resolve the problems due to the other issues.”
