Russia’s VAT Hike Triggers Price Surge as Central Bank Warns of Inflation Risks

At the beginning of 2026, Russia raised its value-added tax from 20 to 22 percent, triggering a noticeable increase in consumer prices. The Central Bank of Russia described the situation as alarming and warned of broader economic consequences.

Photo: Freepik by ededchechine, https://creativecommons.org/public-domain/pdm/

Inflation rate

Central Bank Warns of Persistent Inflation Effects

Representatives of the regulator stressed that the market reaction to the VAT increase sent a troubling signal for the economy. According to the Central Bank, the shock risks keeping inflation expectations among households and businesses at elevated levels.

Officials also cautioned that the impact of the higher VAT could become entrenched over time. Such a scenario would slow the decline of inflation in the domestic market and significantly extend what the regulator described as an inertial inflationary tail.

Against this backdrop, the Central Bank reaffirmed its commitment to maintaining a tight monetary policy in order to restrain price growth.

Putin Calls the Price Spike Temporary

Vladimir Putin expressed hope that the sharp rise in consumer prices following the VAT increase will prove short-lived. He noted that the acceleration of inflation at the start of the year was largely expected.

The president linked the price dynamics to the ongoing adjustment of Russia's tax system. He recalled that from early 2026 the country not only raised the VAT rate but also lowered the initial revenue threshold for small businesses subject to the tax to 20 million rubles.

Putin added that both the government and the Central Bank anticipate a temporary effect from the higher VAT. He pointed out that previous VAT increases also caused price growth, but market balance later recovered. "I believe this will happen again,” the president concluded.

Government Forecasts Inflation Near Target in 2026

By the end of the current year, consumer price growth in Russia should slow to 4-4.5 percent, according to Vice Prime Minister Alexander Novak.

He said that regulatory measures could bring inflation close to the Central Bank's target by December 2026. "Inflation in 2026 will be at the target level,” Novak predicted.

However, several experts question the feasibility of this outlook. They estimate that consumer price growth in 2026 has already exceeded one third of the annual level projected by the regulator.