Potato price surge fuels inflation pain for Russia's poorest

By Gleb Bryansk and Evgeniy Matveev

SERGIEVSKIY, Russia, June 10 (Reuters) - At a farm near Moscow, newly arrived guest workers from India are planting potatoes and cabbages - work closely monitored by central bank analysts as they prepare for board meetings to set interest rates.

While in developed economies such as the United States food accounts for about 14% of the basket used to calculate inflation, in Russia it makes up a hefty 40% or so, and surging prices for potatoes and other staples have been a major reason for its tight monetary policy.

The central bank trimmed its benchmark rate to 20% on June 6 but even that is around the highest since 2003. More worryingly, people's inflationary expectations - a driver for price pressures - remain high despite actual inflation slowing down.

Potato prices, which have tripled since last year when the crop fell by 12%, are not helping matters.

"It is crazy. Potatoes have always been very cheap. At this price, I will not buy them - I think few people will," said Tamara, a 67-year-old pensioner outside a Pyaterochka discount store in Moscow.

Central bank governor Elvira Nabiullina acknowledged the problem in her press conference after the rate cut.

"On a daily basis, people are not buying smartphones and television sets," she said. "They are buying food. If prices there are growing faster, it forms high inflationary expectations."

Russian households spent almost 35% of income on food in April, a record in five years of data and up from 29% last April, a study by the Romir think tank showed.

POTATO CRISIS

Pyaterochka sells Russian old crop potatoes for 84 roubles ($1.06) per kilo and new crop potatoes for 120 ($1.53) per kilo, compared with an average 43 roubles per kilo in retail stores this time last year. That is even higher than the roughly $0.92 per kilo charged in Britain's biggest supermarket chain Tesco.

Prices for onions, cabbage, beets, carrots and other ingredients of beetroot soup, a popular dish across Eastern Europe often used to gauge food inflation, have also surged.

The crisis even caught out President Vladimir Putin, who has been touting Russia's agricultural development and growing exports despite Western sanctions as a success story, despite similar spikes in butter and egg prices earlier this year.

The government has responded by boosting imports. Egypt has tripled potato supplies to Russia, while Belarus, Russia's backup potato supplier, said it had run out of stocks.

STABILIZATION IN JULY

Farmers blame poor weather last year for the lower crop but also point to rising costs for machinery, fuel, fertilizers and labour, as well as high interest rates as factors behind the price surge.

"Last year, at first it was very cold, then came drought," said Yaroslav Ivanov, head of the Sovkhoz Sergiyevsky farm.

"There was a shortage of potatoes, their quality was worse than average. The good quality potatoes sold out quickly, and the situation began to worsen."

He added that high prices this year compensated for some of the losses suffered by potato farmers after a bumper harvest in 2023, when retail prices slumped. This year, the harvest is expected to be better.

"We will see a decrease in price, a stabilization starting from July," said Agriculture Minister Oksana Lut.

The TsMAKP think tank, which advises the government, estimated inflation for the poor - calculated using basic food, utilities and medicine costs - exceeded 20% in April, ten percentage points above the official rate.

"The continued rapid increase in food prices has led to a significant divergence between the price index for the consumption basket of low-income populations and the overall inflation rate," TsMAKP said.

Pensioners make up more than a quarter of the population and the average monthly pension was 23,448 roubles ($298) in April. In real terms, it fell throughout last year before rising 1.4% since the start of 2025.

"Low-income individuals are hit much harder by inflation," said Sergei Aleksashenko, a former central bank official and opposition economist living in exile in the U.S., pointing to pensioners and public sector workers.

($1 = 78.5000 roubles)

(Additional reporting by Darya Korsunskaya, writing by Gleb Bryanski)