Russia has observed its largest decline in annual inflation this year, according to data released by the state statistics agency on Wednesday, as elevated interest rates impact the wartime economy.

Increased military expenditures had provided a boost to the Russian economy for two years following the deployment of troops to Ukraine. However, this surge in spending also led to rising inflation, which is now hindering economic growth as businesses express frustration over high borrowing costs that they claim are stifling progress.

Data from Rosstat, the statistics agency, revealed that the annual inflation rate fell to 6.6% in November, down from 7.7% in the previous month.

Last month, Rosstat indicated that the country’s economic growth was nearly stagnant in the third quarter, while the Central Bank anticipates maintaining elevated interest rates for an extended period due to persistent inflation.

The regulator projects that annual inflation will only reach its 4% target by 2027.

To address the challenges in Russia’s strained public finances, the Kremlin is planning to seek additional revenue from citizens and companies to fill a budget deficit that currently stands at approximately $50 billion this year.

President Vladimir Putin has recently sanctioned an increase in the value-added tax (VAT) from 20% to 22% starting next year.

Additionally, declining oil prices are presenting challenges for the budget, with oil revenues accounting for nearly one-fifth of the state’s income.