MOSCOW, November 5 (RIA Novosti) — There is no doubt that Russia is facing an economic slowdown this year; Rosstat has projected inflation of over 8 percent year-to-date, the ruble has fallen 25 percent against the dollar and the Euro in the same period, and oil prices have fallen to around $85 a barrel. To top it all off, the country has been embroiled in a sanctions war with the EU, US, Canada, Japan and other countries, which has taken a further toll on its growth prospects. But how has all this affected ordinary Russians’ spending and purchasing habits? If some Western news sources are to be believed, Russians shopping for groceries are facing a “food situation so bad people have started eating crocodiles,” according to an article originally published in The Blaze and republished several times last month by other reputable and not so reputable sources.
Are things really that bad? Well, to start, Bloomberg, citing VTB Capital, estimated in early October that Russians are now devoting 38 percent of their monthly budget to food, compared with 34 percent in January –an increase of four percent. Secondly, Neil Shearing, an economist at Capital Economics Ltd., has told Bloomberg that “it is the middle class rather than the working class”, concentrated in cities like Moscow and St. Petersburg, which has been hit the hardest by the slump. This idea is reinforced by Russian business news sites’ advice columns, which address the need to reduce spending on things like weekend trips to Europe, gadgets, new cars, and meals at fine restaurants.
Alexei Ulyukaev, the Minister of Economic Development, told Rossiyskaya Gazeta late last month that the government estimated that food prices have risen on average by 13 percent since January, and that prices of non-food consumer goods have also risen, by 6 percent. If the figures for the rise in food prices may sound shocking at first glance, it is important to note, first of all, that rising prices a steadily observable phenomenon in Russia (they rose 6 percent in 2013), and that in the past salaries and wages have generally kept up with inflation. Secondly, it's worth noting that the rise in prices itself is far from uniform, fluctuating significantly over time (at harvest time, ahead of various holidays), and by region.
For example, the Leningrad Region’s statistical bureau, PetroStat, noted an 9.8 percent overall rise in food prices between January and October, with prices for beef and pork up 12.3 percent and 27.6 percent, respectively, and butter prices up 16.8 percent. Prices for other foods, including eggs, fell 13.3 percent. Moreover, the bureau’s figures show that rising prices did not prevent people from purchasing more meat products (7.3 percent more than in 2013).
In the Nizhny Novgorod Region, the regional statistical bureau noted that while some prices rose over the past three quarters, others, including those for eggs, root vegetables, grains and sunflower cooking oil, have fallen. Moreover, the bureau notes ongoing monthly fluctuations in prices, including declines in those which had risen earlier.
In the Siberian Federal District, prices also vary dramatically depending on supply and infrastructure conditions, with Kemerovo priding itself on low prices for pork, milk, cheese and a number of other goods, Tomsk having the lowest prices for bread, Irkutsk for fish, Barnaul for chicken, and Omsk for potatoes.
This month Rosstat, Russia’s Federal State Statistics Service, noted that in the month of September, real income fell 1.2 percent. Inflation that is higher than initially projected, combined with a fall in growth of nominal pay were the main factors in the decline. It is worth noting that this was the first decline of real income observed in five years, since the 2008-2009 recession.
What have rising prices really meant in terms of choices made by consumers?
To begin with, it has meant that Russians are now shopping at budget stores more often, forgoing visually appealing retailers with higher prices in favor of no-frills alternatives, and taking advantage of promotional and discount campaigns more often. When it comes to food, this means making the switch to stores like Magnit and Pyatorochka, each of which have seen incredible growth this year. According to the St. Petersburg Times, Magnit has seen a 21 percent increase in sales over the first months of 2014, while X5, the retail group which owns Pyatorochka, observed 23 percent year-on-year growth for the month of September. The two massive national chains had launched an ambitious campaign at the beginning of the year to increase their number of stores by 18 and 21 percent, respectively, and it has paid off.
The St. Petersburg Times notes that more than anything, the recent jump in food prices has offered these bigger chains the opportunity to muscle out smaller competitors, with economies of scale allowing for lower prices than smaller, sometimes semi-legal alternatives can provide.
Overall, despite the downturn, Rosstat’s figures show total retail spending to have increased 2.3 percent in the first three quarters of 2014, despite being down from a 3.9 percent rate of growth in 2013.
Late last month, an opinion poll by the National Agency for Financial Research found that while 52 percent of Russians believe that Western sanctions could be playing a central role in leading the country towards an economic crisis, so far about 7 in 10 have not revised their consumer habits, with only three percent abandoning plans they had for large purchases such as vehicles, new homes, or trips abroad.
Experts have told Russian media that while the prices of imported products such as appliances and automobiles are expected to rise in the new year, the question is by how much, because in addition to purchase cost, competition in the marketplace must be taken into consideration, with an observer from Komsomolskya Pravda noting that companies will be willing to reduce their profit margins in order to retain business. In previous years, cities like Moscow have been subject to huge markup for many foreign goods. With the recent downturn, these prices are likely to fall.
The Russian government is also doing all it can to keep prices down and to keep speculators from making a profit at the public’s expense. Presidential Administration Chief of Staff Sergei Ivanov told reporters late last month that while “prices of certain types of goods, including food, have increased…[it] is important that relevant authorities, like the Federal Antimonopoly Service and other watchdogs, have kept an eye on that and prevented attempts to artificially inflate prices, which, of course, can be made by domestic sellers as well as a number of foreign suppliers."
The government’s efforts include increased support for local businesses and producers, with import substitution programs, especially for local food goods at the regional level. It has also attempted to maintain supplies via the import of goods from countries which aren’t part of the Russian-Western sanctions battle. For a number of reasons, including logistics, these measures will take some time to fully bear their fruit. That said, there is no shortage of suppliers, both inside and outside of Russia, willing to provide the country with food and other goods at competitive prices and levels of quality.
So overall, while prices, especially for food, have hit at consumers wallets and their spending habits in recent months, they have not done so as drastically as some articles by scaremongering journalists might imply. We urge you to remember that the next time you read a gleeful article about ‘desperate Russians eating alligator meat.’
