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Vladimir Putin has successfully butted heads with the West before, but now faces a more unpredictable foe: stagflation.

On Friday, Russia surprised global markets by raising its key interest rate for the third time in five months to put a lid on rampaging inflation, while announcing that its economy barely grew in the second quarter.

The combination of high inflation and low growth known as stagflation rattled North American voters in the 1970s. The hope now, at least among many observers in the West, is that it will have a similar effect on Russian citizens, who have shown surprising support for their leader.

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Mr. Putin enjoys an approval rating at home that would make any Canadian or U.S. politician drool with envy. A recent poll from the All-Russian Centre for the Study of Public Opinion shows that 86 per cent of Russians approve of their president's performance despite – or perhaps, because of – bloodshed in Ukraine and the MH17 disaster.

The sky-high popularity rating comes despite a core inflation rate that hit 7.5 per cent in June, well above the Central Bank of Russia's target of 6.5 per cent for the year, and an economy that is verging on recession. It grew only 0.1 per cent in the second quarter after shrinking 0.5 per cent in the preceding three months.

Now, by bumping up its key interest rate by half a percentage point to 8 per cent, Russia would appear to be loading another bundle of misery onto the shoulders of its oppressed citizenry. Or is it?

Mr. Putin's biggest ally in his fight to keep Russian opinion on his side may be demography. By most measures, the working-age population is flat or declining, resulting in an odd combination – record low unemployment despite a stagnating economy.

Unemployment sank to 4.9 per cent in May from 5.3 per cent a month earlier, according to Bloomberg. Meanwhile, real disposable incomes climbed 5.8 per cent.

This could, of course, reflect an optimistic bent in Russia's official statistics. But if the state-approved numbers are even approximately right, they suggest one reason for Mr. Putin's popularity. Despite inflation and slow growth, many Russians appear to be doing just fine, at least compared to their own expectations.

But what happens if Western sanctions tip the country into a serious economic downturn? The latest U.S. sanctions limit the access of some Russian banks and energy to U.S. capital markets and the European Union is considering broader measures. Capital is already flooding out of the country.

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If sanctions dragged down the economy to the point where joblessness began to increase rapidly, Russians may begin to feel differently about their leader. But it's equally possible that they could blame the downturn on foreign influences and become even more united in their support of Mr. Putin.

"Russian authorities in recent years have been so successful in convincing its citizens that all evil comes from the outside that they may have become convinced of it themselves," wrote Vladislav Inozemtsev, director of the Moscow-based Centre for Post-Industrial Studies, in an article last month in the Moscow Times, an English-language newspaper.

Mr. Inozemtsev argues that in Russia's resource-based economy, overall growth rates and unemployment simply don't matter. That is something foreign observers should keep in mind.

Rather than eroding support for Mr. Putin, an economic downturn could solidify his popularity. Stagflation, which fed anti-establishment sentiment in Canada and the U.S. during the 1970s, is more likely to have the opposite effect in Russia.

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