Russia's economy is being hit by stubbornly high inflation and plummeting oil prices with warnings of more pain to come for ordinary Russians amid turbulence in the global economy. The country's central bank kept its interest rate at 21% on Friday (April 25), pointing to the threat "escalating trade tensions" pose to further raising inflation.

At 21%, it is the highest rate since the early 2000s, though the central bank said "current inflationary pressures" continue to decline despite "remaining high", according to Reuters. Russia's central bank forecasts inflation of 7.0 to 8.0% this year and predicts it will return to its 4.0% target in 2026. The Kremlin forecasts economic growth of 2.5% this year but Russia's central bank expects growth of 1% to 2%, with economic activity having slowed in the first three months of this year compared with Q4 in 2024.

Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA) who specialises in Russia's economy and its politics. He suggested a slowdown in Russia could turn into a rout.

In an analysis published by CEPA, he wrote that while Russia's economy is no longer overheating, its economic growth is losing momentum, which will prove "unpleasant" for the 20 million Russians living in poverty.

However, he cautioned that Russian President Vladimir Putin's war effort will "probably be unaffected" by a slowdown, warning it won't be a major problem as long as it doesn't "spiral" into a recession.

Indications of a slowdown include a drop in inflation, slowing industrial output, a fall in borrowing among companies and conumers, whose spending - a "key" driver of economic growth - is also declining.

Mr Kolyandr said Putin's war effort will stay fully financed as Russia's military-industrial complex is the main driver of the country's economy.

He added: "The economy is not demobilising. It is just running out of steam. That said, a drop can easily become a dive. Bad decisions by policymakers, a further dip in oil prices, or carelessness with inflation, and Russia could find itself in trouble."

Kyrylo Shevchenko, a former Head of the National Bank of Ukraine, said Russia's inflation remains "stubbornly high" amid worsening trade conditions and falling prices for oil, which is Russia's main export.

He wrote on X: "The CBR (Central Bank of Russia) reaffirmed its inflation targets of 7–8% in 2025 and 4% in 2026, warning of a 'prolonged period' of restrictive policy ahead. Bottom line: the Kremlin is betting on inflation control over growth, but at 21%, the real economy may soon start feeling the squeeze."

A plunge in oil prices hits Russia's budget hard as it accounts for about a third of government revenues. Earlier this month, the price per barrel of Russia's Urals blend fell to about $53 per barrel, significantly below the $69.7 per barrel average price the Kremlin's 2025 budget was relying on.

The fall in oil prices came after US President Donald Trump announced sweeping tariffs on scores of countries exporting to the United States. Those rates are on pause while countries try to thrash out deals with the US, but uncertainty about the future direction of tariffs means markets are still on the alert.

While Russia wasn't included in a list of US tariffs because it is heavily sanctioned already, the levies look set to slow demand for the oil and gas required to lubricate the global economy thus reducing prices.