01.12.22 Review

Black Swans Through Rose-tinted Glasses: consumer sentiment and economic expectations of Russians in November improved again after the fall of October

Russians' consumer sentiment and inflation expectations have slightly improved after the stress caused by the mobilisation at the end of September, according to new data from the "inFOM" survey commissioned by the Russian Central Bank every month. The consumer sentiment index increased by two points in November after a sharp decline in October. However, this dynamic is not caused by changes in the observed economic situation, but solely by fluctuations in expectations. A similar situation prevails in the enterprises' estimations of the current situation and the population's assessments of the country's economic prospects for the next year and the next five years. After a noticeable dip in October, these assessments have returned to the lower but still elevated mid-2022 levels.
After the surge of "mobilisation" pessimism in October, when inflation expectations slightly increased and economic outlooks significantly deteriorated, the November "InFOM" survey registers a certain stabilisation. The peak of the price shock in the perception of the population was in April, after which the inflation observed by the Russians began to consistently decline. However, in autumn this reduction's pace slowed down, moreover, the inflation expected by the population began to grow in August; in October the proportion of those expecting prices to rise jumped from 14 to 22% of the "InFOM" respondents, and in November it dropped to 18%. According to the Central Bank's calculations, the inflation rate expected by the population was 10.8% in July, jumped up to 12.8% in "mobilisation" in October, and declined to 12.2% in November.

Crisis consumer behaviuor indicators followed the same pattern. The number of those who tended to buy less or buy cheaper goods reached peak levels over the past three years (53%) in the spring. Then it gradually declined to 41% in September, in October there was a slight increase (43%), and in November the dynamics returned to their previous trajectory: 38% of "InFOM" respondents refused to buy and tried to buy cheaper. In November, the number of families who over the past year had to save on something or refuse planned purchases and expenses due to lack of funds dropped by 4 percentage points (to 70%) after an increase of 7 percentage points in October. 

The key integrated indicator, the consumer sentiment index, showed a slight improvement in November after a sharp fall in October. However, upon closer examination, current situation assessments have not changed since August, while expectations were strongly fluctuating. A similar situation is observed in business assessments of the economic situation; stagnation of the production over the past months with strong expectations fluctuations is also noticeable here — they continued to grow in August-September, experienced a sharp decline in October, and somewhat recovered in November.

Consumer Sentiment Index, January 2020 — November 2022

Anomalies in expectations are a characteristic feature of this crisis year, as we have repeatedly written. This can be clearly seen in the consumer sentiment index. While estimates of the current consumer situation fell by nearly 20 points by April, expectations declined by only 12 points. Then for six months, expectations were at levels significantly higher than in the fairly good for the economy 2021. Even now, although expectations were somewhat undermined by the October fall, they are still above last year's average, for which there are no grounds in the economy.

According to the "InFOM" data, the outlook for the country's development looks similar in public perceptions. The average index of Russian economic prospects for the next year was 93 points in 2021, but rose to 102 in the crisis year of 2022; the index of five-year prospects increased from an average of 95 points in 2021 to 108 in 2022. Both indices floundered in October, falling by 12 and 6 points, respectively, but in November they returned to their annual averages.

In general, the situation of high expectations is fraught with new frustrations and the appearance of "black swans" — events that are perceived much more acutely than they deserve, concentrating the accumulated disappointment in themselves. However, the mobilisation, which could have been such an event, has not yet become one, as November's reversal to unwarranted