Russia's war economy faces rising inflation and budget deficits

Russia's war economy is facing increasing strain as inflation and budget deficits signal deeper underlying tensions. While the economy showed a 1.3% growth rate in the second quarter, analysts suggest this figure may be misleading due to the heavy influence of military spending.

Experts note a dual-track economy where industrial sectors fueled by defense spending remain stable, while the civilian sector struggles with rising costs. Households are increasingly turning to cheaper, store-brand goods as incomes face pressure. The situation is further complicated by high interest rates and recent long-range drone attacks on Russian oil refineries and distribution centers, which threaten energy revenues already impacted by Western sanctions and price caps.