(Bloomberg) — A wave of Russians fleeing President Vladimir Putin’s mobilization to fight in Ukraine is stirring up inflation in neighboring countries and possibly putting consumer prices under more pressure at home by straining the domestic labor market.
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Kazakhstan, which quickly emerged as a popular destination that Russians can enter visa-free, experienced what the central bank called a “migration shock.” Alongside other factors such as a stronger ruble, it’s fanning inflation expectations that were among reasons for a bigger-than-forecast hike in interest rates on Wednesday.
Although likely short-lived, “this has created the risk of knock-on effects due to its direct impact on inflation expectations,” the Kazakh central bank said. In Georgia, policy makers left rates unchanged on Wednesday but pointed to a boost in demand as the war and sanctions against Russia “significantly increased migration flows.”
The inflationary impact on Russia itself is less immediately clear as the country’s first mobilization since World War II upends household finances and prompts many to turn thrifty. But with unemployment at a record low and the labor force already short of younger workers, the conscription of 300,000 reservists may have the effect of pushing up wages as competition intensifies among employers.
Economists at the Bank of Russia also said this month that the flight of foreign companies from the Russian market since the invasion in February was creating inflationary pressures as supplies of key consumer products ran short.
The shock may prove fleeting, however, as many Russians choose to move on to other countries after rushing to get out amid widespread uncertainty about the terms of the call-up in September.
Kazakhstan, whose frontier with Russia is the world’s longest international land border, saw more than 200,000 people arrive since Putin’s call-up was announced, but an estimated 147,000 of them have already departed.
For now the new arrivals are helping drive up rent prices and increase living costs for locals. In Kazakhstan, a member of a Russia-led customs union, Russians more than quadrupled their bank deposits to about $1.4 billion this year.
–With assistance from Helena Bedwell.
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