Buy before it starts – Newspaper Kommersant No. 49 (7494) dated 03/23/2023

The consumer sentiment of citizens, according to Rosstat and the Central Bank, was steadily improving in the first quarter of 2023, from polls by the Bank of Russia and data on industrial inflation, it follows that the desire of consumers to get rid of part of the money right now may have already been captured by the industry, ready to raise prices – offer it will not quickly increase, which may further increase inflation in the summer of 2023. It is unlikely that the consumer boom will be long lasting – perhaps it is caused by expectations of a long period of rising prices – but this year it can support a considerable number of businesses.

Rosstat’s consumer confidence index (according to a survey of 5,000 people in all regions of the Russian Federation from February 1 to February 10) grew by 5 percentage points (p.p.) over the quarter, to minus 18%. The local minimum of the indicator since the first quarter of 2015 was observed in the second quarter of 2022 – minus 31%. Noticeable improvements in the well-being of respondents reflect four of the seven sub-indices – changes in the economy that have occurred over the year and expected in a year, expected changes in the financial situation and an assessment of the conditions for large purchases. The latter index rose by five percentage points and for the second quarter in a row, after a break of actually a year, exceeds the index of favorable conditions for savings – it rose slightly (by 2 percentage points), which indicates an increase in the population’s propensity to consume. However, the index of changes in personal financial situation that took place during the quarter did not actually change, showing an increase of only 1 percentage point – that is, we are talking about changes in sentiment.

The main surge in consumer sentiment in the first quarter is observed among young respondents (16-29 years old) – here the index rose by 10 percentage points at once, to minus 13%. This may be due to record low unemployment as demand for labor rises. In February, the Central Bank noted that in many regions, companies have switched to active hiring of young people and people of retirement age due to a shortage of workers.

In favor of the growth in consumer demand that has continued since the beginning of the year (see Kommersant of March 1) in February-March, evidence from Sberindex data on citizens’ spending on Sberbank cards and spending data from the Romir company panel. The former record a nominal increase in spending on goods and services from March 13 to March 19 by 6.8% in annual terms against 2.7% in the previous week (with an emphasis on manufactured goods and services, including air tickets), despite the high base late February – March 2022. According to Romir for the same period, the nominal increase in spending was 5.8%, although in the previous two weeks it could not exceed last year’s records of panic consumption.

The surge in consumption is due to a wide range of factors, including not only record growth in employment, a noticeable increase in real wages and pensions at the end of 2022, the payment of benefits for children from families with incomes below the subsistence level, a sharp reduction in savings of citizens in January and an improvement in monthly lending dynamics of citizens in February 2023 (even the demand for car loans improved), but also a noticeable weakening of the ruble in the first quarter – it could be the last straw for the implementation of pent-up demand for cars and travel.

The consumer sentiment index, which is calculated by the Central Bank according to FOM polls, also rose by 1.6 points against February, once again updating the maximum since May 2018. However, unlike Rosstat, the Central Bank also records the growing propensity of respondents to save since October 2022. In March, 57.3% preferred not to spend, but to save free money (plus 1.4 p.p. compared to February), the highest since March 2021. But more and more people (36% in March) preferred cash for savings, which, according to these polls, also indicates an overhang in demand. Estimates of the actual change in personal financial situation over the year and the favorableness of the current moment for making large purchases, according to the Central Bank, did not change much in March.

The question of whether the mood has changed in reality is important for the policy of the Bank of Russia at the current moment: this will change the macro situation as a whole for a short time. The regulator’s March 2023 Inflation Expectations and Consumer Sentiment review has arguments both for and against the sentiment reversal assumption. Thus, the March decrease in inflation expectations in the group with savings is lower (9.9% in the “year-on-year” dimension for the year ahead) than in the group without savings (11.3%). However, since the beginning of 2023, the Central Bank has been asking questions about inflation expectations in five years – in March, these estimates worsened, although they are slightly lower than inflation expectations in a year (10.4% versus 10.7%), estimates of imputed inflation in the OFZ market are also worse February. There is a lot of talk about the instability of demand now in retail. All this can be seen as confirmation of a scenario in which there is a simple calculation behind the consumer enthusiasm of the population: inflation, in his opinion, will not fall quickly, it is worth buying what we have right now, in the spring-summer of 2023.

The scale of the future surge in demand is not yet known (it is clearly unstable), but this creates pro-inflationary pressure for the coming months. Perhaps the industry has already felt it. Thus, in the summary of industrial inflation in February, there is already an increase (0.9%), which compensated for the February industrial deflation: prices in industry returned exactly at the end of 2022 (in terms of year-on-year, they are even lower by 7.5%, although the fall in processing less – 3.9%). According to the Central Bank, the price expectations of enterprises for three months ahead are also higher than in February – it is possible that companies realize that the growth of previously unsatisfied demand will not be covered by their competitive supply in the short term, and this looks like a repetition of the “post-COVID” recovery and inflation summer-autumn 2021: perhaps this recovery would have lasted a year ahead if not for the subsequent events of February 2022.

Artem Chugunov, Dmitry Butrin