01.11.22 Review

Mobilisation of Pessimism: surveys record slight increase in Inflation expectations and significant decline in expectations about the economic future

The inflation expectations of the population slightly increased in September, mainly among the poor. However, the business's price expectations are deteriorating even more rapidly: in August, they expected a rise in prices by 14.8%, in September — by 15.4%, and in October — by 17.4%. Moreover, the October "InFOM" survey indicates the end of the "optimism rally", which was observed in the spring and summer. Expectations of the population about the prospects of the Russian economy are significantly worsening. While the polls do not record any deterioration in personal financial well-being, they show growing pessimism and a change in personal and family strategies of economic behavior: people withdraw cash from banks, refuse to spend and buy, and become more pessimistic.

Inflation expectations of the population for the coming year remain at a high level, analysts of the Central Bank of Russia wrote in the latest review of inflation expectations and consumer sentiment. Meanwhile, current inflation in the perception of the population continues to decline (in September, the average estimate of inflation was 21.5%, and in October — 18.2%). The expected inflation has grown slightly — to 12.8% in October compared with 12.5% in September. At the same time, poorer respondents (a subgroup of respondents without savings) traditionally perceive inflation more acutely: their estimate of current inflation is 20.5%, and the expected one — is 14.8%, while among the wealthier, it is 14.6 and 10.4%, correspondingly. At the same time, inflation expectations have worsened precisely due to the poor. 

However, price expectations of enterprises are deteriorating even more rapidly: in August, they expected a price increase of 14.8%, in September — 15.4%, and in October — 17.4%.

A more detailed analysis of the data from "InFOM" surveys, on which the conclusions of the Central Bank about the estimates and expectations of the population are based, used then in making decisions about the key rate, allows us to conclude that the "optimism rally" observed from April to August has almost ended (previously we were making similar conclusions based on the "Levada-Center" data). In October, the consumer sentiment index decreased by 5 points compared to September and returned to the values of January 2022 (93 points). As we wrote earlier, after the March shock due to the sanctions and the following inflation spike, when the population's objective economic indicators and sentiments plunged into crisis, the macroeconomic stabilization in April-May filled Russian citizens with exceptional optimism. They considered the effects of the war and sanctions to be temporary and almost over. The consumer sentiment index surged upward. At the same time, its growth was provided mainly by the sub-index of economic expectations. The pre-Covid sub-index of economic expectations was around 100 points; in 2021, it ranged between 90 and 100 points, while in June-September 2022, it jumped to 110 points. In other words, citizens were more optimistic about the Russian economy in these months than before the war. This may be considered an anomaly caused by the spring political mobilisation (the "rally-around-the-flag" effect). Now the expectations index has returned to its normal levels and is likely to fall further. At the same time, the second sub-index, an assessment of the current economic situation, was in a deep crisis zone from March to July (63-72 points) and then stabilized at the normal for the Covid 2020-2021 years level (80 points).

Consumer sentiment index, January 2020 — October 2022

At the same time, estimates of the country's development prospects have worsened more significantly than the estimates of changes in personal well-being for the year ahead (-12 and -9 points, correspondingly). The number of economic optimists in October has decreased (32% instead of 38%), and the number of pessimistic Russians has grown (from 23% to 30%); these groups are almost equal now, which, however, is still much better than the crisis indicators in March (46% of pessimists against 22% of optimists). 

Estimates of current inflation continue to decline, but less rapidly than before, while estimates of expected inflation are rising by all measures. The share of those who expect significant price growth in the next month increased from 49% to 57%, and the proportion of those expecting it in the year ahead increased from 59% to 65%. Those who perceive the economic situation more acutely and believe the prices will rise significantly (and these are the poorer ones) are more likely to blame it on the war (answers to the open-ended questions: "due to the situation in Ukraine"; "due to military operations"; "due to the war — a lot of money goes there"; "the military operation requires a lot of money"; "due to Ukraine and the annexation of new regions, mobilisation"). The share of respondents who use crisis adaptation strategies (buy less often and cheaper products) has slightly increased (from 41 to 43%), but the trend has turned upward for the first time since April 2022. However, at the moment, the deterioration of the current financial situation is not fixed: the assessments of the personal financial situation have not changed, and the index of big purchases has even slightly grown (74 points in July-August, 77 — in September, and 78 — in October).

However, there have been significant changes in economic behavior. For example, amid the "partial mobilisation," Russians have actively begun withdrawing their money from banks again. Surveys show that from August to October, the proportion of Russians who prefer to keep their money in cash increased by 5%, which is 38% of the total number of respondents. This is just one point less than in March when the highest cash withdrawal rate in recent years was set. October also saw a dramatic increase (from 67% to 74%) in the percentage of respondents who said the family had to refrain from planned purchases and spending. This is also related to a quite sharp general deterioration of forecasts, i.e., these additional refusals to travel, repair, purchase cars, etc., apparently occurred precisely during the mobilisation in October.

After a significant improvement, the perception of product shortages has become more stable. In response to the question: " Have you noticed or not noticed a shortage, a lack of any products or goods in stock over the past month?" in April 2022 53% of respondents answered positively, in June — 36%, in July — 21%, and in October — 20%. Apparently, the experience of adapting to new product lines that have replaced previous ones affected the decrease in the perception of shortages, but some of them have not been satisfactorily replaced.