The Price of Eggs is a Sign of Russia's Precarious Economy

For a microcosm of how the Ukraine was has warped Russia’s economy, look no further than a carton of eggs.  The grocery staple has been in short supply in recent months and prices have skyrocketed, prompting Russians from Belgorod to Siberia to form lines reminiscent of Soviet times. President Vladimir Putin has publicly apologized, blaming the egg shock on the government. Last month, a poultry-farm boss known as “the Egg King” survived an assassination attempt shortly after authorities started investigating his farm due to high prices. Behind the soaring price tag—up around 60% from a year earlier—is a convergence of factors symptomatic of the economy’s travails.  

Western sanctions have hurt the poultry industry by scrambling supply chains for farm equipment previously coming from Europe. The weak ruble has made imports of feed and veterinary products more expensive while a labor crunch has left some suppliers without enough farm hands. Booming government spending, meanwhile, has increased wages, boosting demand for food and other goods.  

All of which makes the egg shock a manifestation of the imbalances building in Russia’s war economy.  The country confounded expectations last year by recording respectable growth as Moscow boosted military production and doled out subsidized loans to consumers and businesses. Yet such largess has left the economy running too hot. As a result, annual inflation ended up 7.4% last year, nearly double the central bank’s goal, and the government’s mortgage programs have fueled a housing bubble. 

Economists now expect growth to slow as the central bank raises interest rates and sanctions continue to bite.  “The government looks like a bunch of firefighters who run from one small fire to another with a bucket because they cannot eliminate the underlying inflation problem,” said Alexandra Prokopenko, a former Russian central bank official who is now a nonresident scholar at the Berlin-based Carnegie Russia Eurasia Center. 

As the war in Ukraine enters its third year, the egg crisis shows how Russia is struggling to balance clashing economic imperatives—financing the war, placating popular discontent and keeping the economy balanced, including through stable prices. It’s an impossible trilemma,” said Prokopenko. “Achieving the first two goals requires higher spending, which leads to high inflation, which prevents the achievement of the third goal.” 

Inflation is a growing concern for Putin ahead of presidential elections slated for March. A crackdown on opposition parties and all independent media should ensure he scores an easy victory, but the Kremlin sees elections as a way to legitimize the president’s rule, requiring a degree of genuine popular enthusiasm.