Inflation is now at 2.7% as of October 2017, down from double-digit rates three years ago and overshooting the Central Bank of Russia’s 4% target for this year.
This constitutes an all-time post-Soviet low.
This is in large part thanks to the hawkish monetary policy of CBR head Elvira Nabiullina, and indirectly of Putin, who gave her and the economic liberal bloc political cover in the face of populist opposition demanding lower interest rates and greater state invervention in the economy.
Once Soviet-era capacities, at least in those sectors where they were market-competitive, were restored by the mid-2000s, Russia’s high growth rate petered out (though irrational exuberance sustained it for a couple more years until the 2008 crash). The major problem, besides an atrocious business climate, was that high inflationary expectations had become embedded. High inflation discourages savings, which you need for investment. Consequently, banks were only prepared to lend to small and medium sized businesses at rapacious rates of interest.
But it now looks like Russia’s version of the Volcker shock since 2014 has finally succeeded in taming inflation for good.
This is especially significant since it comes on the back of three other major achievements that are of long-term relevance to growth.
1. A rise from ~120th (i.e. Nigeria) to 35th (i.e. Japan) position on the World Bank’s Ease of Doing Business since the start of Putin’s third term. Russia is still far from the best place to do business in, but it is vastly better than it was a decade ago.
2. A near halving in the numbers of Russian “pocket banks,” to the benefit of established and more transparent lenders (a consolidation that Nabiullina has spearheaded).
3. The beginning of semi-serious efforts to resurrect Russia’s moribund R&D capacities. (More on this later).
Finally, Russia has managed to do all this without the big budget deficits, yawning debt increases, and the unusual monetary experiments that have characterized Western policies since 2000.
Despite the political and foreign policy failures of Putin’s third term in office, and its more “embedded” problems such as elite rent-seeking and excessive state ownership, economic policy during this period is praiseworthy and, barring major geopolitical crises, stands Russia in good stead for a decade of solid growth.