Almost a seventh of the Russian population lives under the poverty line. This was shown from official data Russia released last week. This corresponds to almost 22 million people. In the first six months of this year the number of people below the poverty line increased by 14.8 % to 21.7 million people. These Russians live off less than 10,017 roubles (147 dollars) per month. There are probably more Russians living in poverty, other researches place the minimum level at 22,700 rouble (334 dollars) per month.
Inflation rate Russia
Consumer spending rose by 1% in August
In real terms, adjusted for the inflation, consumer spending rose by 0.97% in August compared to July. Nevertheless, it is still less than in previous years, according to Romir Research Center.
In July, Russians’ real consumer spending fell by 4.7% after rising by 2.5% on a monthly basis in May and June. Compared to July, in August the daily expenses traditionally increased – by 1.4%, which is 1 percentage point higher than the official inflation rate for August.
The Russians tend to buy products with promotional prices, thus compensating the difference in price growth.
In Russia, prices for fruit grew 5 times more than in the EU
Between January-July 2015, consumer prices for fruits in Russia grew by 25.4%, %, according to the Russian Federal Statistics Service. Whereas in the EU the average increase was 5.4%.In general, for the first seven months of 2015, price for food in Russia grew by 10.6%, in the EU it declined by 0.1%.
In January-July 2015, in some EU countries food prices increased significantly too, but this increase was several times lower than in Russia. For example, in Hungary products rose by 3.3%, in Slovenia – by 2.7%.
Russian inflation at fastest in 13 years after ruble crisis
Russian inflation accelerated in March to the fastest on an annual basis since 2002 even as slowing weekly readings allow the central bank to press ahead with cutting borrowing costs. Consumer prices rose 16.9 percent from a year earlier, compared with 16.7 percent in February, the Federal Statistics Service in Moscow said in a statement. The median estimate of 20 economists was 16.8 percent, according to a Bloomberg survey. Prices gained 1.2 percent in the month.
Bank of Russia has started to ease monetary policy this year, following six increases in the benchmark rate last year, as the world’s biggest energy exporter enters its first recession since 2009. The economy has replaced inflation as the population’s top concern, according to a survey published by state-run pollster VTsIOM on March 31.
“Price growth could have peaked over March,” Dmitry Polevoy, chief economist for Russia and Commonwealth of Independent States at ING Groep in Moscow, said by e-mail before the statement. “It’s important that weekly and monthly inflation continue to decelerate.”
The balance of risks has shifted toward “a more significant cooling of the economy,” the central bank said in a statement March 13 after reducing the benchmark rate by 100 basis points to the current 14 percent.
Gross domestic product may shrink as much as 4 percent in 2015 and continue to deteriorate until the first quarter of next year, Bank of Russia Governor Elvira Nabiullina said after the March 13 decision. The regulator will consider further easing if inflation expectations slow, she said. The next meeting on rates is scheduled for April 30.
Price growth has started slowing on a weekly basis. It stabilized at 0.2 percent each week in March, the lowest since November. Weak economic activity will act as a brake on inflation, while the impact of ruble depreciation and trade restrictions that ignited price growth will wear off this year, according to the central bank.
The Russian currency has strengthened this year, showing the best performance among emerging markets in February and March. The ruble gained 1.4 percent to 55.8110 against the dollar as of 3:54 p.m. in Moscow.
“The central bank will in our view have ample room to cut rates more aggressively than priced,” Goldman Sachs economists said in e-mailed report April 2.
Ministry of Economic Development forecasts inflation peak in March-April
Ministry of Economic Development of the Russian Federation forecasts inflation peak in March-April, when it can reach 15-17% in annual terms, said Alexei Vedev, Deputy Minister of Economic Development, on Wednesday, January 14.
“The peak of inflation will be in March-April, yoy inflation in this period may reach 15-17%,” – said the deputy minister. He also said that by the end of 2015, inflation is expected to be double-digit”. Vedev added that this number will be affected by the dynamics of imports and the ruble exchange rate fluctuations.
January 12, Russian Federal Statistics Service confirmed that inflation rate in the country in 2014 was 11.4%, that is the highest rate since 2008. Then, consumer prices rose by 13.3%. In December 2014, consumer prices rose by 2.6% – food products rose by 3.3%, non-food products – by 2.3%. As for 2013 inflation rate, according to the Federal Statistics Service, it was 6.5%.
The official forecast for inflation rate in 2015 made by Ministry of Economic Development in the beginning of December was 7.5%. In the end of December Alexei Ulyukayev, head of the Ministry of Economic Development, announced that accordu=ing to the new forecast of the Ministry, inflation will be 10% in 2015.
Prices for products in retail increased by 20-25%
In 2014, prices for products in retail chains increased by 20-25% on average; and, according to Andrey Karpov, executive director of the Association of Retail Companies, in the first months of 2015, price for f&b products may rise by 14.5-15%.
According to Karpov, food prices will increase both in premium and economy segments. Price growth will affect not only imported products, but also Russian goods, as the main raw material for them or ingredients are imported. However, the rise in prices will not be the same as the currency rates growth against the ruble.
According to the Federal Statistics Service, inflation rate was 8,5% since the beginning of 2014, while in 2013 it was 7.3%.
Supplies to retail chains frozen because of the collapse of the ruble
Prices in shops cannot follow ruble devaluation: before retailers dictated terms to suppliers, now wholesalers lay down terms to retailers. If retailer do not want to increase purchase prices, deliveries of products may be suspended.
Maria Kurnosova, representative of the hypermarket chain Auchan, reported that part of the suppliers, both food and non-food categories, sent a letter that they would stop the shipment of goods, if the retailer did not increase purchase prices.
Some producers reported that a similar situation occured with Metro Cash & Carry: part of their suppliers stopped shipments or warned about this.
Anastasia Orlova, representative of the retail group “Dixy”, said that there were no breakdowns in the supplies, although some suppliers sent requests to increase purchase prices, they also refused to participate in the discount promotions.
Despite the penalties (up to 50% of the contract value), many suppliers suspended work. Small companies, unlike large multinational companies, cannot supply at a loss for so long. About 70% of the suppliers are in the process of negotiations, and if after a day or two retail chains refuse to accept reasonable prices, deliveries may stop at all, according to the head of the association “Roschaykofe” Ramaz Chanturia. “Empty shelves will cause panic among the population”, so retailers are likely to make concessions, he said.
Producer of fish and seafood “Agama” informed retailer about price increase in proportion to the increase of the dollar on Tuesday, said Yuri Alasheev, chair of the board of directors, they gave retailers a week for approval. He said, that most networks responded “quite calm”. “I think the situation will be clarified by Monday, when retailers will respond to our letter”, said Alashaev.
Wine importer Simple stopped selling wine for a while, it is not possible to order drinks on their website at the moment. Online assistance of the website confirmed that the sales were frozen because of the economic situation, and the problem would be resolved in a day or two. Anatoly Korneev, vice president and co-founder of the company, said that this was a “temporary measure”.
Andrew Agarkov, commercial director of the supplier Uvelka (buckwheat and rice) said that they continued supplies to retailers with the old purchase price and would raise prices in February according to the plan after the negotiations with retailers.
With the constantly growing currency rate there is no time for neg long negotiations on the revision of the price, although there is a rule that it should take 45 days, according to Dmitri Leonov, deputy chairman of the association “Rusprodsojuz”.
Product assortment and supply of imported fruits and vegetables are reducing in Russia
Because of the instability of exchange markets and ruble devaluation, suppliers are forced to review the assortment every day and reduce supplies of vegetables and fruits from other countries.
Last week the assortment of fruits and vegetables decreased by 20% on average. Suppliers are ready to stop importing a number of niche vegetables such as cherry tomatoes, zucchini, radishes and some kinds of cabbage.
Situation with fruits is a little better. Citrus, bananas, apples and exotic fruits remain the main fruit imports, as on the eve of New Year holidays, this product is in high demand. However, the geography of deliveries changed. Now Russian importers mainly supply relatively cheap citrus from Turkey, while a month ago the main supplier of citrus was Morocco.
Russia rejects shipment of fruit
The international market for pears and apples is changing. The decrease in the consumption of fruit in Europe and the veto decreed by Putin on the West are changing the economies of large blocks and market flows.
Russia is a prime example of this. On Tuesday, the Russian government devalued the ruble by 5.4%, which has accumulated a depreciation of 52% since early August, when the trade war with the EU and its allies began. This scenario is generating widespread losses in the Russian economy and its effects are starting to be felt in the fruit sector.
Importers of Argentine fruits are unable to meet their commitments because of the deterioration suffered by the local currency in recent times. “They close their agreements with the exporters in dollars and receive rubles for their sales. It is not difficult to understand the crisis they are experiencing,” confided one of the market participants when asked about the issue.
This week a ship with 43 containers of more than 700 tons of apples and pears from the Rio Negro Valley and Neuquén was rejected in Vladivostok, a port city located in the Russian Far East Pacific. Argentina’s Chamber of Integrated Fruit Growers (CAFI) confirmed that the importer failed to pay the freight and port services and therefore the fruit had been rejected.
“The problems that lie ahead with Russia are very complex for the Valley,” said Marcelo Loyarte, manager of CAFI. The official said that the ruble’s devaluation “is hitting the regional fruit producing sector as the dollar is anchored at 8.5 pesos here and internal costs are growing.”
The high expectations about the Russian market are evaporating as the harvest in the southern hemisphere approaches and Putin’s economic problems deepen. Part of these problems are due to the drop in international oil prices. Russia, one of the largest exporters of oil in the world, depends on oil sales. Hence, the 35% fall in the price of a barrel of oil will significantly affect the country. The acceleration of the devaluation of the ruble looks to mitigate the negative effects of this economic scenario.
The Rio Negro Valley exports an average of 90,000 tons of pears and apples to this market per year. Exporters are very concerned as Argentina’s exportable supply loses competitiveness in a market that has already devalued its currency by more than 50% in just a couple of months. They wonder if Russian imports this season will ratify the historical purchase volumes and if prices will be good enough to cover the costs in the Argentine market.
Russia’s Economic Development Ministry expects a recession next year
The ruble sank to a new low of 54 against the U.S. dollar on Tuesday, giving up early gains after Russia’s Economic Development Ministry said it expected a recession next year and sees the currency remaining weak.
At 8:30 p.m., the ruble was down 5 percent against the dollar at 54 after rising as much as 1 percent on the day earlier in the session. It was trading 4.5 percent weaker against the euro at 66.9.
The Russian currency is at historical lows against both currencies.
Crude gave up some of its gains from late Monday but, at just above $71 per barrel of Brent, remained above the multi-year lows reached earlier. That lifted the ruble in early trade after it suffered its biggest intraday losses in 16 years in the previous session.
But the Economic Development Ministry said that lower oil prices and sanctions imposed on Moscow over its role in the Ukraine conflict will cause gross domestic product to contract by 0.8 percent next year, a significant change from an earlier forecast of 1.2 percent growth.
The ministry also cut its forecast for 2015’s average oil prices by $20 to $80 and said it expected an average ruble rate of 49 to the dollar.
“The revision of the economic outlook had been expected, but for some it still could have been an unpleasant surprise that had forced foreign currency purchases or closure of short positions,” said a dealer at a major Russian bank.
Comments from Finance Minister Anton Siluanov that the ruble is significantly undervalued in relation to current oil prices failed to lift the Russian currency. On the contrary — the ruble weakened further.
The Finance Ministry said later it was canceling its weekly treasury bonds auction, usually held on Wednesday, because of unfavorable market conditions.
The ruble closed its previous session down 1.6 percent, probably supported by interventions from the Central Bank, traders said. But earlier in the session on Monday, it had traded as much as 7 percent lower against the dollar.
“In case of a further fall in energy prices the dollar is poised to firm to at least 55 rubles and the euro-ruble rate should reach 68-70 rubles,” Gleb Zadoya, head analyst at Profit investment house, wrote in a note.
Vladimir Tikhomirov, an analyst at BKS, said crude prices may bottom out at $60 per barrel and the ruble’s “fair” value at that price would be around 55 rubles per dollar.
Russian stock indexes reflected the ruble trade. The ruble-based MICEX closed up 0.3 percent at 1,583 points, because of the currency’s weakening. The dollar-based RTS was down 3.4 percent to 925 points.