Manufacturing Powerhouse: How Russians View Inflation and the Key Rate
Essentially, there are two ‘economies’ in any society. The first is the academic economy – perfectly logical, strict, and formal, speaking in a language based on models and equations. The second is the ‘naïve’ economy – rich and diverse, based on common sense and personal experience. There is a huge gap between these two economic frameworks.
Numerous studies show that to explain current economic trends, people tend to use simple heuristics, i.e. extremely simplified judgements. Their interpretations depend on people’s day-to-day life experience and ideas of fairness, with expectations relying on the level of knowledge and social context. A classic work in this area is Robert J. Shiller’s 1997 research. According to that, non-economists perceive inflation differently from economists. In his survey, many respondents attribute inflation to malicious or incompetent activities of businesses or government, giving it a moral and political dimension. Concerns about unfairness, exploitation, and even national decline were mentioned. These notions differ substantially from the concerns of economists (e.g. a loss of efficiency or reduced confidence) and highlight the important role of values and narratives in the public perception of inflation.
The data in such studies are usually based on structured surveys compiled using quantitative sociological methods. This literature still lacks inductive reasoning that would describe ‘naïve’ theories of prices, pricing, and the key rate.
In our new research (link in Russian), we conduct in-depth interviews with people across Russia in order to hear their perceptions of how the key rate works and how they shape their price expectations. We have compiled a ‘narrative map’ that might bridge the gap between the two systems of economic views and show weaknesses in central bank public communication.
‘In a dark wood’
Inflation expectations of Russian households remain high and widely diverge from official benchmarks and forecasts. As of mid-February 2026, the median estimate of expected inflation over a one-year horizon was 13.1%, according to the InFOM survey, with ‘observed’ inflation at 14.5%. Even when inflation was close to the Bank of Russia’s target of 4% between 2017 and 2021, inflation expectations were double the target and were persistently resistant to the reduction.
In our research, we apply a new lens to answer the question of why this is so. So far, inflation expectations have been explored using primarily quantitative sociological methods, and less frequently, controlled experiments. We decided to add qualitative sociological research to the existing large volume of literature as part of the grounded theory methodology developed by US sociologists Barney Glaser and Anselm Strauss in 1967. They showed that theory might be constructed on empirical data rather than used to describe the data.
The method is based on a relatively simple philosophy: if you find yourself ‘in a dark wood’, per Dante (the feeling with inflation expectations is something like this: we may have learned a lot about them but may have missed something crucial), then start from the very beginning, i.e. go out and talk to people as if you do not know a single thing about the subject, and just hear them out.
Our study is constructed as qualitative research in the logic of grounded theory: in-depth interviews, follow-up multi-stage coding, and compilation of the ‘narrative map’ using graph-based text processing. The result is a coherent map of perceptions of inflation, the economy, and the key rate grouping 165,000 tags in 16 core categories (see figure). The empirical basis is 52 in-depth interviews conducted in 11 large cities in all federal districts (face-to-face interviews, June 2024). An important limitation is that it is neither a representative survey, nor a measurement of frequencies, but a description of a range and internal logic of narratives.
Average expenditure vs visible items
Researchers tend to explain household economic expectations through changes in prices for salient goods – ‘visible items’. Some studies show that households do not examine the whole range of prices, but focus on those for some very important goods and services. Changes in their prices serve as grounds for shaping household inflation expectations, reflecting a bounded rationality of the perception of price dynamics and explaining some variations in household expectations.
The most popular potential ‘visible items’ are various food products. Their impact on inflation expectations is explored in numerous papers. For example, a UK data-driven study arrives at the conclusion that food prices are more important for shaping consumers’ expectations of future inflation. In addition to food products, researchers outlined the importance of prices for cars, oil, and petrol.
In our study, we used several approaches to ask informants about ‘visible items’. For instance, we asked them to name three products or services, the prices for which they remembered very well. Also, we asked them to remember surges in prices for individual goods and name them. It turned out to be difficult for many informants to answer such questions.
In response, the informants tended to form an ‘average expenditure’ category. That means that people had difficulty in naming prices for, say, tomatoes or chicken legs, where prices had increased. Instead, they used the average expenditure on regular purchases in supermarkets. Typical statements in these blocks look like this: ‘When in a supermarket, I only look at the final receipt. I do not break down the total amount by product. I buy a set of food products I need’; ‘Previously, I spent 1,000 rubles on bread and milk a week and could spend another 1,000 on something else. I don’t mean expensive goods. But now, I have to spend 3,000 rubles on the same set of goods. Basically, I pay 3,000 rubles now for the same things that I used to buy for 1,000 two years ago.’
Moreover, inflation was judged by large purchases (cars, apartments, home renovations, expensive services, etc.) and critical goods for each specific consumer (medicine, medical goods, and baby food were mentioned more often). Petrol was treated individually as a price pressure indicator.
It is worth noting that salient goods were the only category that did not register narrative saturation during the research. So, even the 52nd informant still named new categories (food products or services) that they pay attention to for price changes.
The list of such purchases proved to be surprisingly long. Apart from the expected meat, vegetables, milk, petrol, cigarettes, and the ruble exchange rate, it included avocados, winter tyres, ski equipment, company stocks, contact lenses, gym memberships, bottled water, glazed curd cheese bars, cherries, massage services, and many other categories that make up a minor percentage in the Rosstat consumer price index, or are not included in it at all. In other words, consumption patterns differ drastically among the informants and their lists of ‘visible items’ are extremely individual.
Men are more likely to assess inflation by expensive purchases (apartments, cars) and petrol. Women named utility, dental, cosmetic, and nail services more frequently. The latter was mentioned among visible items much more often than taxis, haircuts, and even utility services (although within the framework of qualitative research methods, we cannot make an exact comparison of frequencies across categories).
Key rate and economy of supply
The research was focused on collecting of narratives about the role of the key rate in the system of economic values and perceptions of Russian people. To this end, we first of all identified these values by asking the informants several questions about what a ‘good economy’ was like, in their opinion.
The study has found that the prevailing ‘naïve’ narrative associates a ‘good economy’ with a self-reliant industrial country aimed at sustained growth of goods supply – a manufacturing powerhouse, often compared to the USSR or China. This narrative encourages supply-side anti-inflation policy prescriptions – domestic manufacturing, fair prices, and administrative regulation – and is often at odds with how central banks explain the mechanism of the key rate’s impact via the supply side.
The informants gave a wide range of opinions on how they viewed the key rate and its role in the economy. Often, these opinions were conflicting, for example, ‘the key rate influences consumption’ and ‘the key rate has no impact on consumption’. Alternatively, ‘the key rate is somehow connected with inflation’ and ‘I don’t see a link between the key rate and inflation’. The informants also shared opinions that any change in the key rate is somehow linked to the state budget, economic growth rates, mortgage lending, and the ruble exchange rate. Please note that the objective of our study is to collect all possible public perceptions of the subject rather than examine people’s economic knowledge.
In the context of the prevailing value narrative treating a ‘good economy’ as a manufacturing powerhouse, the key rate was thought to be an instrument to support industrial production via access to cheap funding.
The industrial narrative is closely connected with the construction narrative. The informants were as positive about construction booms as about opening new factories and production facilities. The narrative of active construction is related to the key concept of ‘housing conditions’. This concept is also linked to very important items for the informants like mortgage lending, apartments, and housing affordability. An opportunity to buy a flat is thought to be one of the most important signals of a good economic situation. In this context, the central bank is expected to maintain low interest rates on a permanent basis to support production.
Inflation of costs is considered to be a core problem the central bank must tackle through low interest rates on loans. Administrative regulation of prices is supported, but with the following reservations: it should either be targeted at low-income groups, or apply only to basic food and medicine. The informants concede that total regulation of prices is likely to cause problems, such as shortages of goods and no growth in wages.
The informants shared particular opinions on how they perceive the pace and scale of the key rate changes. Many of them felt uncomfortable about the fact that the key rate ‘changes often’ and wondered why the key rate was mentioned so often (especially when it remained unchanged). This is an interesting signal for the central bank whose economists tend to wonder whether their messages reach a wide audience at all.
However, the most important thing is that even not knowing how a key rate rise might influence inflation, the informants’ preferred strategy was saving in such a case.
To save or to spend?
We collected data with a special focus on discussions of economic behaviour patterns: whether people tend to panic buy, how they explain this phenomenon, what the reasons are, how they respond to various economic shocks, and whether their higher expectations really push up their spending.
Overall, the informants assess their tendency towards panic and impulse buying under the influence of a negative information environment as low. Such consumer behaviour (‘stockpiling buckwheat and tinned food’) is rather criticised (‘the children laugh at me when I do that’). The informants who used this strategy regret it, conceding that ‘shops have everything you need’ and there is no need to stockpile because ‘after spikes caused by panic buying, prices return to their previous level’, and ‘food products have a shelf life’.
However, the most proinflationary strategies of consumer behaviour were reported by the youngest informants (up to 25 years old). These strategies even exceeded those used by the older generation who survived hyperinflation and goods deficit. For instance, ‘When I expect the price for an expensive product to rise, I buy it immediately on credit to lock in the price. Because I have been there. I was saving for a purchase, but the price soared so high that I could not then afford the product.’
This strategy stands in stark contrast to the most frequently reported strategy ‘When I expect prices to rise, I will adopt a ‘wait and see’ strategy, hoping that prices will go back to normal, or will look for alternatives, or reduce consumption of this product.’ In the baseline strategy, a loan is taken out only as a last resort, and only for very expensive purchases, like cars or apartments. The young informants are more inclined to use credit to buy relatively inexpensive goods. This probably comes from the fact that the young generation became adults in the difficult times between 2020 and 2024.
Other seemingly quite uncommon strategies of consumer behaviour include conscious consumption (a green focus, an intention to buy as little as possible to reduce the environmental footprint), active investment (high appetite for stock market instruments), and greater consumption of services rather than goods.
All these observations expand our understanding of the position of inflation and the key rate in the economic value map of Russian people and their economic decision-making. The next step is to validate the trends identified with quantitative sociological methods.
