Three graphs speak to the plight of the Russian consumer in 2015: the ruble-dollar exchange rate, inflation, and real wage growth:
http://cdn.tradingeconomics.com/embed/?s=usdrub&v=201512111855m&d1=20141001&d2=20151211&h=300&w=600
Source: tradingeconomics.com
http://cdn.tradingeconomics.com/embed/?s=rucpiyoy&v=201512102303m&d1=20140101&d2=20151231&type=type=line&h=300&w=600
Source: tradingeconomics.com
http://cdn.tradingeconomics.com/embed/?s=russiawaggro&v=201511231138m&d1=20140101&d2=20151231&h=300&w=600
Source: tradingeconomics.com
Below is my translation of an article on Znak.com that puts all of this in everyday terms for shoppers in Yekaterinburg. You can read the original here.
“The price of potatoes in Russia has risen by 300 percent . . .”
What will happen to the price of groceries in 2016. Znak.com presents an alternative to the official forecast.
The Kremlin doesn’t think that the economic crisis has significantly affected Russians’ incomes. According to the Sverdlovsk statistical bureau, since the beginning of the year food prices have increased by an average of 15.2%, slightly above the inflation rate (13.5%). Znak.com decided to conduct its own market research and found out that the prices for some products grew by 300 percent. The details and expert predictions for 2016 are in our survey.
Milk, buckwheat, vegetables, and meat are our food basket
We took a simple approach to confirm exactly how much food prices have increased: hunt down old receipts from November and December 2014 and make a test purchase. The supermarket Yabloko on Botanika was the place for the first phase of our experiment. The total amount on the receipt from December 30, 2014 was 2355.90 rubles. It wasn’t possible to find all the items on the receipt because for some reason the market didn’t have the usual chicken eggs on that day (the salesclerks were not able to explain why), and there were no rollers for cleaning clothes and notebook paper from exactly the same company, so the total sum of the purchase was even less, 2104.20 rubles. But if you compare the prices on the rest of the receipt, the increase turned out to be 17.6% in total.
However, at some places, we found a significant increase, and this is not just for imported goods. For example, the price of Polyanka milk increased from 32.9 rubles to 56.4 rubles, or 71.4%. A two-liter bottle of Fanta rose from 49.9 rubles to 95.8 rubles (almost two times), tangerines increased from 76.6 rubles to 110.2 rubles per kilogram. At the same time buckwheat and tomato prices slightly fell: from 71 rubles to 66.8 rubles, and 184.9 to 173.2 rubles respectively.
However, we were able to confirm that the price situation varied at other stores. For example, in comparison with November 2014 the price of buckwheat in the Ashan market on Metallurgov Street rose by 77.56% from 37.44 rubles per kilogram to 66.48 rubles (the price on 12/08/2014 for the Don Gusto brand is the same). Also at Ashan the price for rice from the same brand rose from 40.11 rubles to 58.54 rubles (an increase of 45.94%). Ashan’s own brand of fusilli pasta rose by 51.58% (from 96.54 rubles for a four kilogram box to 146.34 rubles), a package of Russian Sugar by 29.62%, and liter of Korona Izobiliia cooking oil by 37.4%.
In addition, at Ashan a two-kilogram packet of Uvelka flour produced by the Chelyabinsk firm Resurs became 35% more expensive over the year, rising from a price of 44.7 rubles to 60.38 rubles. By the way, at Yabloko on Botanica the price of the same package of flour didn’t rise as much, only by 8.4%, but its price is still significantly higher at 74.4 rubles (compared to 68.6 rubles last December).
Some items have come down in price at Ashan, though there are not so many of them (but would like more). From our grocery list there is perhaps only oatmeal and Per’ya pasta. The first (the Don Gusto brand) fell 14.98% to 14.92 rubles per half a kilogram, and the second by 22%, to 15.41 rubles for the same amount.
We can conclude that at Ashan, prices for many products have significantly risen more in terms of percentage, than in other supermarkets. Nevertheless, the same prices were traditionally far lower.
We also turned our attention to the rise in prices for chocolate and champagne, which is important on New Year’s Eve. For example, in late 2014 Alenka milk chocolate bars (produced by Red October) cost 82.2 rubles, now its 32.76 rubles more expensive, an increase of 39.85%. The Krasnodar champagne Abrau-Durso (semisweet, 0.7 liters), costs 250 rubles a bottle, a price increase of 35.47% to 338.68 rubles.
We also examined meat products and eggs in more detail. Chicken from the Reftinskaya poultry farm increased by 10.27%. In January, in Supermarket №2 [the chicken] sold at 159.15 rubles per kilogram. Now it costs 175.5. The price of a dozen eggs from the Sverdlovsk poultry farm (like Reftinskaya, it is located in the Sverdlovsk region) has increased by 10.67% and now sells for 56 rubles. Molochnye sausages (sold under the brand name Zhukovskye sausages) rose by 6.19% to 377 rubles per kilogram. GOST brand beef stew has risen by 24.22% over the year from 115.22 to 143.13 rubles per jar (525 grams). By the way, a similar pork stew rose only 9.51%, from 117.37 to 128.54 rubles. Interestingly, the Vetchina dlaya zavtraka and Zhukovsky sausage brands did not increase in price over the year and is still 478 rubles per kg.
There was a significant rise in prices for virtually all types of toiletries.
For example, the cost of Colgate Triple Action toothpaste (an American brand from the Colgate-Palmolive Corporation) at Ashan has increased by 41.93% from a year ago. It was 22.97 rubles, now it’s 31.61. In November, Pantene Pro-V Shampoo (the brand originates from Switzerland and is now owned by the American Procter & Gamble) cost 145.6 rubles per bottle (400 gr.). Now it’s 188.45, an increase of 29.42%. The domestic soap, Dlya vsei sem’i, became more expensive by 22.53%. The price of the cheapest toothbrush has increased from 13 to 18.86 rubles.
“We live from pension check to pension check”
Almost all of the shoppers Znak.com managed to talk to in Yekaterinburg stores also noticed a significant rise in prices. “The price for dairy products has risen, and sausage [products] have also become very expensive. I spend 500-700 rubles in the store, and have to come back the next day,” retiree Ekaterina Borisovna quickly began to list off. We met her on the doorstep of one of the Kirov supermarkets in the center of the Urals’ capital. “We live from pension check to pension check. But I still only feel it a little bit because my son helps me,” she said. If it wasn’t for him, the old woman would have had to give up “fruits, some sausages, and meat” a long time ago. “My pension is10,883 rubles a month and 1773 rubles for (third tier) disability. Half of it goes to medicine straightaway, and the rest goes to pay rent,” she explained.
We meet two young mothers with strollers at the Megamart store. “Before [Putin’s sanctions] decree, I generally didn’t keep track of prices, now I do my best to buy more on sale,” says one of the parents. Cottage cheese is the first thing on the list of more expensive items– “It’s at 7 rubles,” bread “from 18 to 22 rubles,” and Huggies diapers are now 911 rubles for a pack of 68.” She says that her family has recently completely given up on cheese. “There’s no regular cheese, and what’s there is impossible to eat,” she describes the sanctions’ impact. In the store we meet an elderly man among the shelves of canned meat. He, judging from the conversation, loves fish, but because it’s now more expensive he’s had to follow the advice of Ilya Gaffner, a deputy in the Sverdlovsk Legislative Assembly, “You need to eat less.” “I buy less,” says the man.
“Everything … (is very bad – Znak.com), I say this to you in Russian,” says 65-year-old Valentina. She’s from Kushva, she worked 25 years underground in a mine, now her pension barely exceeds 12,000 rubles a month. “I’m amazed by our government. I was in the Party and on the shop committee, but I couldn’t even imagine the kind of life that awaited us,” she continues. Like the others, she notes the sharp rise in food prices. But this is not the main reason for her displeasure. “It’s the quality! That’s the problem. Take sausage—they’re absolutely flavorless; there’s no quality. We pay money for nothing,” says Valentina. She herself did not have to cut her shopping list, but she’s been forced to earn a decent bit on the side while retired.
“Prices have risen, are rising and will rise”
Retailers and economists are confident that in 2016 the increase in prices will continue, and according to various estimates, they will go up an average of 16 percent. “It’s difficult to make predictions, but no one expects anything positive. I think that inflation will continue to rise and the population’s purchasing power will decrease, ” says Leo Kovpak, deputy of the Sverdlovsk Legislative Assembly and former vice president of the Kirovskii chain. According to him, the next year’s official forecast for inflation in Russia is 6.5 percent, but, according to the deputy, it will reach at least 10 percent. “It certainly affects the prices in the stores, but yet they’re very much reflect the various kinds of bans and embargoes on cooperating with other countries. For example, on the day when the import ban on goods from Turkey was decided, contractors from Abkhazia raised the price of tangerines by 20 rubles, or by about a quarter. In general, the price of tomatoes and mandarins now looks dreadful,” Kovpak says.
On the need for competition in the market, Alexander Ogloblin, the owner of the Elisei chain, says, “Recently, at the level of various government structures are bragging that the absence of Turkish products in stores after the New Year will have no serious impact. It is inconceivable how this is possible given the significant market share, conditionally from 10% to 30%, Turkey has in some types of fruits and vegetables,” Ogloblin says. However, he recalls that when Russia imposed an embargo on food from Europe and the United States, illegal Polish apples were imported under the guise of being Serbian.
“I expect that after the New Year, out of nowhere, we will begin getting deliveries of huge Azerbaijani hothouse tomatoes,” says the retailer.
According to him, of course, they will in fact be Turkish tomatoes prepackaged in Azerbaijan. “And the question is how customs will deal with this. If they close their eyes and provide an example of a successful import, the prices will slightly rise, but if the fight against Turkish products goes full hilt, the rise in prices will be even more tangible,” Ogloblin says. The retailer shies away from giving specific predictions, but he also says, “prices have risen, are rising, and will rise.” “Inflation of 6 to 15 percent in Russia has not ceased over the past few years. In addition, utility and transportation costs are also rising which are piled on the cost of goods,” he says.
Viktor Sychev, the owner Yekaterinburg Urozhai vegetable warehouse believes that of the 15% rise in food prices this year, 7-8% of it is due to the “sanctions.” “Rotten potatoes” make up a major part of statistics on vegetables. “There was a poor harvest, and the result is potatoes are mainly imported, causing a price increase from 8 to 30 rubles. That’s 300 percent”, he says. According to Sychev, food prices will continue to rise in 2016. “15%,” he projects will be the ceiling, “it all depends on the exchange rate.” And he stresses: “No analyst can precisely predict a fluctuating market.”
In the near future, our interlocutor assumes a reduction in citrus prices because vendors are now trying (until January 1, 2016) to bring in as much from Turkey as possible.
In contrast, tomato and cucumber prices will grow. “Citrus needs temperatures of 5 degrees, and they normally keep. The cucumber is water, and can’t be stored for a long time,” Sychev says. Retail chains play a role by adding their own mark-up. For example, our interlocutor presented the actual wholesale prices for his company: “Oranges are 65-70 rubles [per kilogram, depending on the manufacturer and grade], bananas are 60-65 rubles, grapefruit are 80, pears are 80-90, limes are 100, clementines 95, mandarins from 70, Grammy Smith apples are 75-80, Simirenko apples 50, squash are 70 and gourds are 30.”
Viktor Galkin, the general director of Elitfrut (trademark of Globus) partially agrees with Sychev. “A stronger dollar means produce will be more expensive. The dollar drops and prices will be lower,” he says. He also mentions another factor—in reaction to the sanctions against Turkey, “Our Chinese friends have already raised prices by 30%.” However, a serious rise in prices in 2016, in his opinion, is only possible on the imported products. Vegetable prices will remain unchanged: “A lot of these crops did well this year. Our farmers even left them in the fields. The [potato] market didn’t pay higher than 8-9 rubles per kilogram.” All the more so, the potato supply disappeared in Moscow and St. Petersburg, and “they started to actively grow them” themselves.
“As for the fruits, it’s hard to predict. Yes, the price goes up. But you can only speculate if there’s a market,” Golkin continues. “People aren’t buying at the moment. Subjectively, purchasing power has been reduced by 30 percent and many vegetables have replaced fruit in people’s basket.” “Pyaterochka is an example. They buy tangerines from us for 105 rubles [per kilogram] but sell them at 69.9. At a loss. Magnit does the same. Also they do the same with bananas, the output price ranges from 65 to 75 rubles, and in Ashan it held at 49.9 for a year. Thanks to this, at least this way there’s some volume,” are specific examples the businessman offered.
Aleksandr Tatarkin, the director of the Institute of Economics of UrO RAN, says that, according to various forecasts, by 2016, food prices will rise by 9% to 16%. “This will affect the most in-demand goods: meat, milk, buckwheat, vegetables, and sour cream,” he says. The expert points out that, in addition to the sanctions, additional store mark-ups should be taken into account. “In my opinion, this area needs more rigid state control. Though, apparently, the state is not going to take drastic measures to curb prices. Russia’s 2020 development strategy put the rising cost of various services, including utilities and transportation, at 8% to 30% annually,” he says.
