Fortune telling on consumer sentiment – Newspaper Kommersant No. 18 (7463) of 02/01/2023

In January 2023, FOM polls for the Bank of Russia record a decrease in inflation expectations and an increase in consumer sentiment against the backdrop of an increase in the propensity to save. But the regulator’s analysts admit that the savings mood of the population is unstable: liquid savings, in fact, are pent-up demand. At the end of 2022, due to the deterioration in the availability of quality goods, demand has already resulted in an increase in the consumption of services and prices for them, fueling inflation. In 2023, the likely return of the population to the consumer model carries not only inflationary risks, but may also become the main reason for the return of the economy to growth.

Although from a historical point of view, inflation expectations of the population at the beginning of 2023 remained elevated, in January, according to the FOM polls, they fell for the fifth month in a row. Observed annual inflation was estimated at 14.9% versus 16.3% in December 2022 (lowest since June 2021), and median expected inflation in a year was 11.6% (against 12.1% in December). The decrease in inflation expectations is caused by changes in the estimates of respondents without savings, while the estimates of the group with savings have been close to the average for 2021 for four months already, in January – 10.2%.

Consumer sentiment also improved markedly in January: the corresponding FOM index added 6.5 points to December, reaching a maximum since May 2018. The increase in the propensity to consume is especially noticeable among the population of cities (from 100 thousand people), where in January 31% of respondents (the maximum since February 2022) said that now it is better to spend free money. “In part, the January increase can be explained by the influence of seasonality,” the Central Bank suggests (the impact of New Year’s social payments and bonuses).

A surge in demand for Sberbank cards in January is also recorded by Sberindex in terms of services and food, although purchases of goods (especially durables) go deeper and deeper into the red. The reason for the jump in demand may be, among other things, the weakening of the ruble. “In January, positive dynamics of consumer spending will be recorded (by December with the elimination of seasonality). In real terms, spending could rise to the highest level since March 2022, having overcome the mobilization shock,” analysts of the MMI Telegram channel believe.

Not only seasonality can speak in favor of the temporary nature of the surge in consumer sentiment and consumer demand in January. In January, the respondents’ propensity to save also increased. The share of those who prefer to save rather than spend free money increased to 54.9% (by 0.6 percentage points against December), although in cities it decreased by 2 percentage points, to 56%. As analysts at the DIP Central Bank note in the January bulletin “What Trends Say”, a noticeable increase in ruble deposits of individuals in December (up to 4.6% from 1.5% per month, seasonally adjusted) is associated “with a general recovery of income and a relatively high annual bonuses and social benefits. However, in the structure of savings, fixed-term deposits grew faster – up to a month, while long-term deposits (more than a year) – decreased. In other words, the population is ready to turn such savings into demand at any moment.

“Possible intensification of consumer activity against the backdrop of growing household liquid savings and an increase in incomes at a rate outpacing economic growth, as well as a weakening of the ruble, carry pro-inflationary risks,” analysts of the DIP Central Bank emphasize, suggesting that this, with a possible recovery in demand for retail loans, may lead to economy to growth in 2023. At the same time, they note the prerequisites for maintaining cautious consumption due to high uncertainty and geopolitical risks.

According to Raiffeisenbank analysts, unlike in 2021, in 2022, the growth in funds in household accounts exceeded the volume of new unsecured loans by 1.2 trillion rubles, which served to compress demand. Bloomberg Economics estimated the lost growth of the consumer loan portfolio in 2022 due to the tightening of monetary policy at 1.5 trillion rubles, or 7% of non-food retail turnover.

Artem Chugunov