The inflation is pushed by a huge inflow of capital at a time when global oil and food prices are witnessing a remarkable hike, posing both economic and political challenges for Russia, an emerging market.

Soaring oil prices during Putin's term led to an inflow of petro-dollars, which boosted the economy of the energy-rich nation. However, given its heavy dependence on energy exports, there are suspicions about how long the boom will last.

According to the Federal State Statistics Service, the Russian economy grew at an annual rate of over 7 percent in the past five years, except for 2005 when its GDP expanded only 6.4 percent.

The share of oil and gas in Russia's GDP has increased from 12.7 percent in 1999 to 31.6 percent in 2007, and natural resources account for 80 percent of its exports, according to the Institute of Economic Analysis.

The new president is expected to reform the executive and legal branches to better administrate the country and facilitate economic development, analysts say.

Another challenge for Medvedev would be finding the best way to deal with the West and some neighboring countries, ties with whom soured over such issues as the gas price dispute, the planned U.S. missile shield deployment in eastern Europe and the eastward expansion of the North Atlantic Treaty Organization.

Putin's role

Speaking at Medvedev's inauguration ceremony, Putin called on the Russian nation support Medvedev and continue on the path toward national development.

"It is now very important to continue the already chosen course of the country's development, guided by citizens' interests, which has already justified itself," Putin told the assembled lawmakers, government officials and foreign diplomats.