26.09.22 Review

Russian’s surge of economic optimism finally over and replaced with stagnation, rather than depression, polls show

September data from InFOM, a regular poll commissioned by the central bank, reveals a stagnation or even reversal of opinion regarding actual and expected inflation levels, as well as the financial well-being of households. The survey is the most detailed study of the population’s economic situation and its expectations for the future. On the whole, Russians believe that the cycle of deflation is over. Feelings of economic well-being, which were on the rise in late spring and summer, have also stagnated, and the consumer sentiment index, although still experiencing abnormally high levels, has started to slide.

The monthly inFOM poll is commissioned by the central bank and plays an important role in decision-making regarding monetary policy measures. The purpose of the survey is to determine the population’s subjective perception of inflation. It also tracks people’s expectations regarding inflation, as well as consumer and savings sentiment.  Expectations and sentiment impact consumer demand, and as a result, influence price dynamics. The survey provides the most comprehensive analysis of Russia's economic well-being.

After a surge in March-April (when 92% of the respondents noted an increase in prices), the population’s perception of inflation has been consistently decreasing, and September was no exception, when only 79% of people mentioned rising prices. However, the rate of decline has slowed sharply. Expected inflation within the next month has stagnated, but in the long term, Russians anticipate prices growing over the next 12 months (March — 75%, May — 49%, September — 59%). 

As a result, the respondents’ median assessment of actual annual inflation peaked in May (25.1%) and steadily decreased over the summer months. In September, assessments of actual annual inflation rose again, and estimates of expected inflation began to grow in August. There is also a growing proportion of those who doubt that over the next three years the central bank will be able to return to its inflation target of 4% per year, as per the plans announced by the regulator back in the spring.

Direct estimates of the annual supply, January 2020 — September 2022, % per annum, median values

On the whole, this data indicates that people imagine the cycle of deflation to have ended. When inflation began to decline, after a surge in March-April to 17-18% per annum, people expected this trend to continue into the future. By early September, real annual inflation had dropped to 14%. At the moment, however, people’s confidence in inflation continuing to fall past its current levels is on the decline. 

The population’s expectations of an improvement in economic well-being, which were on the rise in late spring and summer, have also stagnated. According to inFOM surveys, the number of people resorting to "crisis" consumer behaviour (purchasing cheaper products, as well as refusing certain goods, services and entertainment) has nearly stopped falling. The peak of this behaviour was observed in April — May, when 31% of respondents were ready to buy cheaper products, and 25% were ready to stop buying certain goods and services. In August and September, these numbers stabilised at 24% and 18%, respectively. The number of respondents who are willing to buy large home items, such as furniture, fridges, consumer electronics and TVs continues to rise, albeit at a slower pace. The Large Purchases Index, calculated as the difference between the share of positive and negative responses regarding people’s willingness to buy such items, has stabilised at 77, which is 20 points less than in 2021.

The integrated consumer sentiment index, which includes several assessments of the country’s general development as well as fluctuations in the financial situation of both individuals and households, also indicates interesting changes. The calculation of the index is based on the difference between the share of positive and negative answers plus 100. 

Having fallen to 80 points in March, the index showed abnormal growth in the spring and peaked at 98 in the summer. This number seems strange, because throughout 2021 the average value was 89. Is consumer sentiment in the summer of 2022 significantly better than last year? This is actually not true at all; in reality, consumer spending has fallen by 8-10%. This data anomaly was actually the result of a fake surge in positive expectations. In the summer, the consumer expectations index (the average of three indexes, including expectations of changes in one’s personal financial situation over the next 12 months, expectations regarding the development of the country's economy over the next 12 months and expectations of the development of the country's economy over the next five years) jumped to 110 points. In the prosperous 2021 it was only 95 points. This process is directly related to the “rally around the flag” phenomena, an artificial social mood which has been observed in many cases of foreign policy conflicts. 

Consumer sentiment index, January 2020 — September 2022

The number of people noting an improvement in their personal well-being rose in May — August (from 11% to 16%), but in September the trend reversed (14%). A similar thing happened to respondents' expectations regarding their financial situation, as well as their unemployment forecasts; negative assessments peaked in March — April (about 50% expected an increase in unemployment), then decreased to 40% by June and have stagnated since. 

The share of respondents with personal savings decreased over the summer (35% of the respondents have them). On the contrary, about 40% of the population have taken out loans (13% have a consumer loan in a store, 10% have a bank loan for urgent needs, and 10% have a mortgage), and among entrepreneurs and contract employees, every second person has a loan.

It is still difficult to say whether or not the outlined changes are the result of the excessive optimism observed at the beginning of summer cooling off. Russians were, after all, expecting a crisis in March — April, which consequently failed to happen. It could also be the result of people coming back home from their holidays, which is a seasonal, temporary effect. Finally, it could turn out to be a warning sign of a new crisis looming on the horizon.