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The federal Russian government will increase minimum wages and pensions from June 1 as it seeks to counter the effects of double-digit inflation closely linked to Western sanctions.
Inflation in Russia stood at an annual 17.83 percent in April, according to official statistics, and 1.14 percent on a monthly basis.
The United States, the UK, and the European Union have all imposed sanctions on Russia and Russian citizens and entities, and while some of these are largely symbolic, such as banning high-ranking officials from traveling to certain countries, others have directly targeted Russia’s economy.
A host of Western companies have left as a result of the sanctions as well as due to reputational pressure, contributing to the adverse effect of the sanctions on Russia.
Yet this effect doesn’t seem to be as severe as the authors of the sanctions might have hoped it would be.
A recent Financial Times report noted that a lot of Russians are employed by the state. This would cushion any potential blow from the exit of Western companies on the labor market.
In addition, inflation has begun to decline, the FT noted, suggesting the worst of the sanction fallout is being handled.
The future remains full of uncertainties, however, now that the EU has agreed, albeit only in principle, to phase out Russian oil imports almost completely by the end of the year.
There were internal disagreements on the oil ban in the EU, but the bloc agreed to make concessions for Hungary, Slovakia, and the Czech Republic, excluding Druzhba pipeline imports from the embargo proposal.
Meanwhile, earlier this month, Russian bank VEB forecast that even if the government raises minimum wages and pensions by 10 percent, this would not be enough to completely offset the effect of higher inflation on household income.
It could only cushion it, the bank said, with real disposable income likely to decline by 7.5 percent and real wages to go down by 6 percent this year.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com