At The Store

As the ruble continues to slide, the Russian Central Bank’s (and the Kremlin’s) biggest fear is still inflation. That is, how will the so-called “average” Russian be impacted when going to the store. Slon Magazine recently did an experiment to see how Russians are being impacted at the store:

Despite its importance, inflation is quite an abstract indicator. Therefore, Russians, looking at the regular report of Rosstat [the Federal State Statistics Service], which reported an increase in consumer prices of 13% over the past year, can only smile sadly: the feelings of individual families, their consumer basket rose by half to two times.

Slon Magazine decided to take a different route and took as much as possible from one particular store. Using the data, which was provided by the company “MonitorTsen”, we compared the prices of the same goods in January 2016 and January 2014 at the store “Crossroads” on Tishinskaya Square in central Moscow. Our “consumer basket” in does not claim representativeness in any way: for the purity of the experiment we excluded fruits and vegetables.

“Fruits and vegetables are difficult to compare. Potatoes, roughly speaking, can cost anywhere from 5-100 rubles,” said the Director of Development at “MonitorTsen” Sergei Ipatov corresponding with Slon.

I won’t go through every single item on Slon’s list, but in all, their “basket” of goods rose by 1901.80 rubles or by 35%.

As a result, a person capable of traveling back in time to two years ago – to Russia to Crimea, the Olympics, the sanctions, and the collapse in oil prices – could save 1900 rubles from 7409, in which he will manage the food set today. Rising prices of our consumer basket over two years is 35% — this was a fun way to prove close to the Federal State Statistics Service [Rosstat], which averaged 32% increase in food prices over the same period.

Biggest increases: chicken (+100% in 2 years), sugar (+89%), “Doshirak” soluble noodles (+77%), Finn Crisp rye crackers (+77%), herring (71%), buckwheat (71%). Red Bull rose the least (just 7%), and “Riga noble” bread even fell slightly (-2%).

You can also compare Slon’s research to what Ilya Varlamov found at his local supermarket back in August.

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Downshifting

Sberbank chief German Gref caused a scandal at the Gaidar Forum last week by calling Russia a “downshifting” economy, and saying that Russia had been “defeated in the global competition”.

A long piece in Novaya Gazeta highlighted some of Gref’s comments:

“According to him [Gref], the technology gap between the leading economies and lagging countries may be greater today than in the era of the industrial revolution of the 19th century. And the only chance to fight for the future is to change the entire state system and all social institutions ranging from the education system, which today is not only ineffective, but works exclusively to export talent [brain drain]. Gref also described Russia as a “downshifter country” — the… term usually refers to a person who gave up a career and competition for a “life for themselves”.

Wikipedia defines “downshifting” as:

“a social behavior or trend in which individuals live simpler lives to escape from the rat race of obsessive materialism and to reduce the “stress, overtime, and psychological expense that may accompany it”.”

So what is the economic prognosis for 2016? Novaya’s journalist talked to Russian economists to find out.

  • Capital outflow: $50 billion
  • Sanctions will continue
  • No growth
  • Recession will last 4-5 years
  • GDP decline: 2-4% in 2016
  • Budget Deficit: not more than 5%?

Other predictions and factors:

  • This year will see a confrontation between the Finance Ministry, who want to adhere to an austerity policy, and other agencies, desperately clinging to their dwindling budgets. “…the 10% [budget cut] is clearly not enough”, says economist Sergei Hestanov.

Another possible source of revenue for the federal budget is partial privatisation. But the low price of Russian assets and the unwillingness [of the state] to give up control of “Gazprom” and “Rosneft” will encourage the government to ensure that the reserves are spend first, according to Mironov. In addition, the crisis situation in the economy reduces the demand for domestic assets, so the state does not have a real opportunity to bring in a lot of money through this tool, experts agree.

  • Printing money still seems like a radical idea… But if budget problems continue to grow uncontrollably, after 2018 [the presidential election], anything is possible.

“A deficit is a situation where the state cannot fulfill its obligations. This is most clearly expressed in the form of delayed pensions, and public sector wages [already a problem in certain regions]. A deficit of 3% is a critical value: in this range the budget remains stable and manageable, but as soon as that mark is passed, the risks are greatly increased,” says Sergei Hestanov.

  • The authorities will try to take all possible measures to keep the deficit within acceptable limits, but if oil prices hold out for a long time below $30 a barrel, it will rise above 5%.
  • If Iran does aggressively dump oil, prices could halve again to $14.5 per barrel. For the state this is a catastrophic scenario, at such prices oil companies are exempt from the tax burden, and the budget is deprived of a significant part of its revenues.

The key factors will be the indexation of pensions significantly lower than actual inflation, as well as a tougher business policy – the protracted nature of the crisis will force employers to cut costs more decisively.

In terms of the population, the main risk is still inflation, says Doctor of Economics Yevgeny Gontmakher. The rise in prices is felt by people much more than the official statistics tell us. The second point is what happens with the social benefits of the population, especially at the local level.

“In 2016, social factors override macroeconomics. If you approach the issue purely from accounting, the budget can be halved — cut costs — and that’s it. but this year will be a year of great social tensions. It won’t turn into an organised movement, but constant local outbursts, as we have seen in Krasnodar, where pensioners took to the streets, or the truck driver protests last year, will be significantly strengthened,” predicts Gontmakher.

So things are bad, and only going to get worse. And it’s too late to turn back the clock.

A Positive Approach

As the World Economic Forum in Davos approaches, the Russian government has come out with a positive sales pitch. One such example is this interview that Deputy Prime Minister Arkady Dvorkovich gave to Bloomberg, where he states that he “personally believes” oil will bounce back to between $50-60 within the next three years. Whatever your opinions on the subject, the market is not that easy to predict, and Dvorkovich’s statement cannot really be considered anything other than wishful thinking.

Dvorkovich then suggests that agriculture will see growth, but concedes that the domestic market is not where they will focus, but rather on foreign investors. He tries to pitch “improvements in the investment climate”, but given the recent breakdown of ties with Turkey, where Turkish companies were forced out, I would not put too much stock in that statement.

Dvorkovich tried to put a positive spin on the situation, but instead he came across as rather desperate.

This is in marked contrast to the statements that came out of the Gaidar Forum last week, where the elite made no promises and criticized the Putin government for its failure to modernize.

Meanwhile, Deputy Prime Minister Yuri Trutnev is leading the Russian delegation to Davos this year. This suggests that Russia is looking for investors in Russia’s Far East, and it will be interesting to see who (if anyone) bites.

 

 

Don’t Drink Your Milk

The following article has appeared on fontanka.ru:

Rosselkhoznadzor [Russia’s Federal Service for Veterinary and Phytosanitary Surveillance] has published on its website information “about the discovery of harmful substances in 100% of the products produced domestically.” The study was carried out by the “All-Russian State Center for Quality and Standardization of Veterinary Drugs and Feed”…, subordinated to Rosselkhozhadzor.

In the study, 15 samples were taken of Russian milk, dairy products, pork, poultry, and one sample of Hungarian beef. The results showed that all samples from Russia had harmful substances, but the Hungarian beef did not.”

Screenshot of Rosselkhoznadzor's statement
Screenshot of Rosselkhoznadzor’s statement

For example, in the four samples of milk, [researchers] found the antibiotic chloramphenicol, which is used in medicine for dysentery, pneumonia, gonorrhoea, and other communicable diseases. It is contraindicated in those who suffer from fungal infections, psoriasis, and eczema. It causes irritation of the mucous membrane in the mouth, and skin rash. With prolonged use – fungal infections of the skin and mucous membranes.

Metabolites of furazolidone were found in all the samples of Russian pork, which is commonly used for the treatment of diseases in the gastrointestinal tract, urogenital system, and skin. In some cases, side effects include possible skin rash, itching and hives. Contraindications include those suffering from kidney failure, liver disease and nervous system. It is also contraindicated for patients whose work is related to driving and other dangerous machinery.

“Experts… also examined a sample of Hungarian beef… no violations were identified.” said Rosselkhoznadzor in a statement.