Tax shock: how long has inflation skyrocketed after the VAT increase
The data for the beginning of the year turned out to be a cold shower for those who expected a slowdown in inflation in Russia. The price increase by January 12 was 1.26%, which is more in line with the quarterly figure. Nevertheless, almost all analysts attribute this surge to the VAT increase from January 1. Whether the rise in inflation is long—term or it is just an episode after which the situation will return to normal is in the Izvestia article.
In more than a month
Official inflation figures for the whole of last year have not yet been published, but according to the general opinion of economic experts, it will amount to no more than 5.7%. This, of course, is far from the target level of the Bank of Russia, but it is a huge improvement compared to the figures of the first half of last year, when the annual price growth reached double-digit levels. The slowdown in inflation was a smooth and obvious process that allowed us to be optimistic about the future at the end of last year.
The first figure of the new year turned out to be slightly shocking. Even adjusted for the fact that this is data based on the results of 12 days, rather than one week, this is a lot. On an annual basis, taking into account seasonal and calendar factors, this would mean growth rates in the region of 15-20%. For example, for the whole of January 2025, prices increased by 1.23%.
Vegetables became the growth leaders (cucumbers added 21%, and tomatoes - 14%), which is expected, but the scale of the surge turned out to be too sharp. In general, fruit and vegetable products immediately increased by 7.9%, and in general, food significantly increased in price — even those goods that do not have a strict reference to seasonality. At the same time, the vast majority of non-food products and almost all services grew in price below the general inflation.
"Spread out over a block"
At the beginning of 2026, the base VAT rate in Russia increased from 20% to 22%. Russian President Vladimir Putin said the decision was temporary. Nevertheless, such an increase could not but affect inflation. In the long run, tax increases do not accelerate inflation, but at the moment the effect can be strong, and besides, it is not very clear how long this moment can last.
According to Anton Tabakh, chief economist at the Expert RA rating agency, it is very difficult to assess the effect of the VAT increase, in addition to stating its significance.
The scale will be clear from the monthly and, more precisely, quarterly data. We expect that, as in 2019, the main surge will occur in January, but part of the effect of the tax increase will spread to the first quarter," he said.
Evgeny Goryunov, Head of the Monetary Policy Laboratory at the Gaidar Institute, agreed that the VAT increase had the main effect on price growth in the first half of January. At the same time, he believes that fiscal changes will continue to put pressure on prices in the next half of the year.
— In total, the tax increase will add 1.2–1.7 percentage points to year-end inflation. The overall effect on inflation is noticeable, but not critical. However, this means that the Central Bank's rate will remain at an elevated level for longer," Goryunov said.
At the same time, Egor Zinoviev, an analyst at Cifra Broker, noted that although such a surge in inflation in the first week of January is primarily due to an increase in indirect taxes, a significant increase in the cost of fruit and vegetable products that are not subject to increased VAT hints that there are other factors.
— It is noteworthy that this growth on the evening of January 14 provoked an inspection by the FAS. In addition, tariffs for public transport were increased and prices for tourist services increased, which also contributed to inflation. If we talk about the breakdown, then about 45% of the contribution from the total price increase was made up of increases in indirect taxes, 30% of the contribution was made by an increase in prices for fruit and vegetable products, and another 20% was made up of indexation of fares for public transport and an increase in prices for tourist services," the expert said.
There is no reason for alarmism
Anton Tabakh, in turn, notes that the data for the holidays are not very representative, even when compared with previous years.
— We should wait for the monthly data. Segment analysis shows stronger price spikes in more volatile segments, such as vegetables, which does not create a reason for alarmism," he stressed.
Zinoviev also said that the impact of the VAT increase would not be purely one-time. During the first quarter and up to May 2026, secondary effects will occur through production chains. The tax increase will gradually affect the cost of B2B services, logistics and maintenance.
The Izvestia interlocutor also noted that from a medium-term point of view, these figures are serious, since in just two weeks a significant part of the annual projected price growth rate has been absorbed.
— The main risk lies in a possible increase in inflation expectations, which will force the regulator to keep the key rate at a high level of 16-21% at least during the first half of 2026. The situation is complicated by the shortage of personnel in the labor market and the inertia of wage growth, which supports excessive consumer demand. The current surge is seen as an adjustment period, after which tight monetary policy should bring inflation back to its target of 4-5% by the end of the year, the Izvestia source predicts.
Thus, although it is impossible to talk about the return of peak inflation, the New Year's rise in prices may decisively affect the policy of the Central Bank. The Bank of Russia is already lowering its key rate below expectations. With a rather negative news background, the regulator may hold rates for longer than everyone hoped (especially amid reports of explosive growth in consumer lending). However, one should not get ahead of oneself before the release of the January data either.
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