Higher oil prices bolster Russia’s war economy

The latest rise in oil prices presents challenges to the near-term outlook for most countries in Emerging Europe by weakening their terms of trade and pushing up inflation – which already looked set to hit 5% y/y in Hungary and Poland later this year. But Russia is one country which stands to benefit. Higher oil prices will give the government more room to expand military spending, although given the tightness in the labour market, this would add to inflation pressures.