Russian butter prices soar, testing Putin pledge to supply both ‘guns and butter’

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By Guy Faulconbridge and Andrew Osborn

MOSCOW (Reuters) – President Vladimir Putin says that Russia’s war economy is well balanced to supply both guns and butter, but the price of butter itself is now soaring as surging inflation distorts parts of the economy.

The price of a block of butter has risen by 25.7% since December, according to the state statistics service.

Reuters reporters found shopping bills showed the price of a pack of “Brest-Litovsk” high-grade butter in Moscow has risen by 34% since the start of the year to 239.96 roubles ($2.47).

“The Armageddon with butter is escalating; we wouldn’t be surprised if butter repeats last year’s situation with eggs,” economists on Russia’s popular MMI Telegram channel warned, referring to an earlier spike in egg prices which alarmed consumers.

The steep price rise has prompted a spate of butter thefts at some supermarkets, according to Russian media, and some retailers have started putting individual blocks of butter inside plastic containers to deter shoplifting.

The authorities, who have gone to great lengths to try to ensure the war in Ukraine does not affect people’s daily lives, are watching closely.

Dmitry Patrushev, a deputy prime minister in charge of agriculture, said on Oct. 23 that the government would monitor butter prices. He met major dairy producers and retailers and said imports were being stepped up.

Milk prices have soared too as have wages, interest rates, fuel and transport – all price inputs for butter. Butter imports from Belarus are not sufficient so Russia is expecting a big shipment from Turkey, and even from Iran and India, Russian media reported.

DEFENCE SPENDING RISES

Reuters reporters who visited three Moscow supermarkets found the shelves well stocked with different brands of butter at different price points.

But some shoppers grumbled.

“Specifically, butter has increased in price, some fruit and vegetables too. Potatoes and cabbage are very expensive,” said Elena, a Moscow pensioner. However, she had been able to find cheap cucumbers and buckwheat.

At another supermarket, Sergei Popov said he was worried.

“Every morning, we have to eat butter for breakfast. We buy milk, cheese, sausages, eggs and bread. And where has that 1,500 roubles ($15.35) gone? It’s very expensive. It is not clear why prices are going up,” he said.

Putin has made much of the resilience of Russia’s economy, and mentioned the relationship between ‘cannons’ and ‘butter’ after he appointed an economist, Andrei Belousov, to head the defence ministry earlier this year.

The $2 trillion economy has so far outperformed expectations: shortly after Putin sent troops into Ukraine in 2022, Western economists predicted its imminent collapse.

Instead, despite the harshest Western sanctions imposed on a major country, it grew faster than the United States and almost all major European countries.

Prices, though, are now rising – as are interest rates, which the central bank hiked 200 basis points to 21% on Oct. 25, their highest since 2003. The central bank forecasts inflation of 8.0-8.5% this year.

As it fights against Western-backed Ukraine, Russia is spending more on defence than at any time since the Cold War – and that is pushing up prices even if the International Monetary Fund forecasts growth of 3.6% this year.

Jim O’Neill, the former Goldman Sachs chief economist who coined the ‘BRICs’ term in 2001, has questioned how sustainable the situation is.

“It’s all because of enormous Russian defence spending,” O’Neill told Reuters of the overall macro picture. “So I think the medium term outlook to long term outlook is quite bleak.

($1 = 97.7455 roubles)