Prices-2022: Food and cosmetics will ambush the Kremlin
Prices will attack the emaciated wallets of Russians in full growth. There is not even the slightest assumption that in the coming new year, the rise in food prices will at least slow down significantly. At the same time, experts emphasize that in their calculations they do not yet take into account possible natural disasters and other emergencies in Russia and its partner countries.
- Thanks to the ongoing dollar issue in the United States, logistical disruptions, and our monetary policy, it is not necessary to expect price stabilization in 2022, - says Associate Professor of the Faculty of Economics of the RUDN Sergey Chernikov:
- Therefore, it is easier to say what prices will rise relatively below average. Most likely, cars, clothing and electronics (primarily smartphones and laptops) will become more expensive the slowest. These groups of goods in 2021 have already hit the "glass ceiling" of the falling purchasing power of the population. Therefore, growth here is expected at the level of official inflation. The rest - food, medicine, excise goods, household chemicals, cosmetics and hygiene products - will continue to grow (perhaps even "race").
A shortage is always possible, because it is difficult to predict where and when the next lockdown will paralyze the operation of the hub port or the tanker will block some important logistics route. However, it is usually difficult to achieve a full-fledged deficit in the modern economy - there is always another, more expensive or less convenient way of transportation.
Another thing is that due to falling incomes of citizens, there may be a shortage or disappearance of specific products in the assortment. For example, instead of the usual dozen brands of olive oil, there may be two, and worse quality. This danger in 2022 is quite real and will occur on a wide range of goods.
In times of crisis, consumers always redistribute the budget. Key areas like medicines, food, transportation, education continue to be paid for and at the same time move towards cheaper analogues. Less important elements are either thrown out completely, or go into the category of "for a special case".
The trouble is that consumers do not immediately realize that the crisis will last for a long time, and for some time they try to maintain their usual standard of living with consumer loans. As a result, in 2021, every third consumer loan is overdue, which further reduces the standard of living.
- Food inflation in Russia is growing at a faster pace, - says Olga Belenkaya, Head of the Macroeconomic Analysis Department at FINAM:
- With a total inflation of 8.4% (YoY), by the end of November, food prices rose by 12%, and for a number of types of products, the price increase is much higher. Next year, the situation with food prices may remain difficult against the background of record gas and electricity prices in Europe, which may lead to a reduction in the production of fertilizers, compound feeds and an increase in their cost, which will be transferred to the prices of agricultural products.
- Thanks to the ongoing dollar issue in the United States, logistical disruptions, and our monetary policy, it is not necessary to expect price stabilization in 2022, - says Associate Professor of the Faculty of Economics of the RUDN Sergey Chernikov:
- Therefore, it is easier to say what prices will rise relatively below average. Most likely, cars, clothing and electronics (primarily smartphones and laptops) will become more expensive the slowest. These groups of goods in 2021 have already hit the "glass ceiling" of the falling purchasing power of the population. Therefore, growth here is expected at the level of official inflation. The rest - food, medicine, excise goods, household chemicals, cosmetics and hygiene products - will continue to grow (perhaps even "race").
A shortage is always possible, because it is difficult to predict where and when the next lockdown will paralyze the operation of the hub port or the tanker will block some important logistics route. However, it is usually difficult to achieve a full-fledged deficit in the modern economy - there is always another, more expensive or less convenient way of transportation.
Another thing is that due to falling incomes of citizens, there may be a shortage or disappearance of specific products in the assortment. For example, instead of the usual dozen brands of olive oil, there may be two, and worse quality. This danger in 2022 is quite real and will occur on a wide range of goods.
In times of crisis, consumers always redistribute the budget. Key areas like medicines, food, transportation, education continue to be paid for and at the same time move towards cheaper analogues. Less important elements are either thrown out completely, or go into the category of "for a special case".
The trouble is that consumers do not immediately realize that the crisis will last for a long time, and for some time they try to maintain their usual standard of living with consumer loans. As a result, in 2021, every third consumer loan is overdue, which further reduces the standard of living.
- Food inflation in Russia is growing at a faster pace, - says Olga Belenkaya, Head of the Macroeconomic Analysis Department at FINAM:
- With a total inflation of 8.4% (YoY), by the end of November, food prices rose by 12%, and for a number of types of products, the price increase is much higher. Next year, the situation with food prices may remain difficult against the background of record gas and electricity prices in Europe, which may lead to a reduction in the production of fertilizers, compound feeds and an increase in their cost, which will be transferred to the prices of agricultural products.
Although the government is taking measures to "untie" world prices from domestic ones through export restrictions and agreements between fertilizer producers and farmers on temporary price fixing, this can only partially help. In addition, a significant part of food, feed and their components are still imported.
In addition, petroleum products are becoming more expensive, the cost of labor is rising, and interest rates on loans are rising.
Much will depend on next year's harvest in Russia and in the world. Perhaps the government will take additional measures to support farmers, as well as more difficult measures to reduce trade barriers to imports (while there is a proposal from the Ministry of Agriculture on duty-free imports for pork and beef within quotas) to ensure sufficient supply of products on the domestic market.
- There will be an increase in the price of the entire segment, in which even a narrow category is marked, - says Nikolay Novoselov, director of the Cuore trade and production company:
- On the one hand, there are not so many new groups for marking. But it is important that the introduction of a new product into labeling increases the price not only of a specific group of products, but also the entire market segment. First of all, this is due to the fact that labeling requires updating the seller's software, training all personnel, introducing additional control points, as well as legal and accounting support. In a simple way, despite the most difficult stage of the economy, enterprises will have to invest heavily in the implementation of accounting. Of course, the consumer will pay for this.
At the same time, some small stores will simply close, which will lead to a decrease in competition and, again, to an increase in prices throughout the segment.
This just had a big impact on fish and meat last year. Products from the labeling category will become more expensive by 20-30% until the end of next year (manufacturers will not immediately increase the price, but will do it in waves, with reference to dates, as now - the products of the "New Year's table" have risen in price). With delivery - either all products will grow by 5-10%, or by default there will be paid delivery. But most likely, there will be some kind of mix (special - affordable - prices with a large purchase, 3 free deliveries per month, etc.).
- The increase in food prices will remain double-digit, - says Maxim Krivelevich, Associate Professor of the Department of Finance and Credit at FEFU:
- Firstly, because at the moment there is no visible, let's say, mood to abandon quarantine measures in large countries, such as, for example, the USA, Germany, Japan. Then the "overflow" system operates. That is, the problems, for example, of the United States, as a consumer of raw materials - transport, logistics, etc. - affect other participants in this market. If factory conveyors stop in Germany, then in other countries it slows down the activities of companies that depend on German supplies.
The first part of the problems is that the bureaucracy in a number of large countries really liked the idea of introducing quarantine regimes – with countless restrictions on the rights and freedoms of citizens. This is a non-Russian factor, and it will not go away in a couple of months. It will be good if it ends by the next cold season.
The second is the domestic factor. Political tension is a very expensive hobby. If you allow yourself, so to speak, international tension, and it does not matter whether you are absolutely right or absolutely wrong– then you get a failure in the economy. It's inevitable. It's like when cars collide at an intersection – it doesn't matter who ran a red light and caused the accident - both participants will suffer losses and will be late for scheduled meetings.
"SP": - But such "accidents" in the international arena happen all the time…
- I think no one will argue that now, even in relation to the recent past, the situation here is significantly aggravated. For example, in 2002, Russia did not have anything even remotely resembling the foreign policy tension that we are witnessing now. There were no events related to Georgia in 2008, Ukraine in 2014, there were no sanctions, anti-sanctions, etc., but there was a huge influx of investments.
After all, 2002-2004 was a period when really just half of the world dreamed of working in Russia. Because here salaries in dollars were higher than in Canada or the USA in positions of the same level. There was free movement of goods.
Firstly, everyone dreamed of investing money in Russia, and secondly, everyone dreamed of introducing their goods to Russia. Hence, there was an excess of both, and, as a result, there was a more comfortable market situation. At prices – several times less for the raw materials that we sell. That is, maybe there was less money, but the mood was better. This is the second and very powerful factor.
And there is a third factor. This is an approach to monetary policy. An increase in the rate automatically leads to an increase in the cost of loans. And all models of economic growth have two factors - labor and capital. An increase in the rate leads to a rise in the price of capital, but also of labor. Why? The purchase of labor on the market (salary) is the result of negotiations.
Yes, they are not equal, not fair, but it's still a negotiation. Accordingly, expecting inflation, people will demand an increased salary. And now the increase in the rate leads to the fact that both of the two factors of production become more expensive. And if your production cost is growing, then everything is simple - the consumer pays for everything.
Because there are three in the market: the state, which is not in a hurry to help the population, the manufacturer, which no longer has its own margin of safety (for a year and a half of quarantine, few people have anything left after a decrease in profits), and the consumer. If the state does not want, and the manufacturer cannot reduce its appetites, then the consumer will have to squeeze.
"SP": - Will prices increase constantly, without periodic reduction?
- Winter - both the first quarter and the fourth - will be quite tough in this regard, and the summer months - August, September - will statistically show a slight decrease in prices due to seasonality - fresh fruits, vegetables. I emphasize that I am not talking about a decrease in prices, but about a decrease in statistical indicators. Because, conditionally, neither chicken, nor beef, nor fish– nor anything that allows a person to eat normally, will become cheaper. Simply due to slightly cheaper fresh fruits and vegetables, a statistical decrease in the price of the consumer basket is formed. Which, again, will be true, but not the whole truth. It will just be a reflection of the seasonal nature.
And this is still without taking into account natural disasters - droughts, crop failures, etc., which may happen or will bypass us - we do not know how to predict this yet. And also, this is without taking into account how things will turn out for the partner countries, what initiatives the Ministry of Agriculture will have, whose actions may lead to shortages and price increases, etc. Here, without taking into account this spontaneity, there will be a plus 10% to plus 20% price increase.
In addition, petroleum products are becoming more expensive, the cost of labor is rising, and interest rates on loans are rising.
Much will depend on next year's harvest in Russia and in the world. Perhaps the government will take additional measures to support farmers, as well as more difficult measures to reduce trade barriers to imports (while there is a proposal from the Ministry of Agriculture on duty-free imports for pork and beef within quotas) to ensure sufficient supply of products on the domestic market.
- There will be an increase in the price of the entire segment, in which even a narrow category is marked, - says Nikolay Novoselov, director of the Cuore trade and production company:
- On the one hand, there are not so many new groups for marking. But it is important that the introduction of a new product into labeling increases the price not only of a specific group of products, but also the entire market segment. First of all, this is due to the fact that labeling requires updating the seller's software, training all personnel, introducing additional control points, as well as legal and accounting support. In a simple way, despite the most difficult stage of the economy, enterprises will have to invest heavily in the implementation of accounting. Of course, the consumer will pay for this.
At the same time, some small stores will simply close, which will lead to a decrease in competition and, again, to an increase in prices throughout the segment.
This just had a big impact on fish and meat last year. Products from the labeling category will become more expensive by 20-30% until the end of next year (manufacturers will not immediately increase the price, but will do it in waves, with reference to dates, as now - the products of the "New Year's table" have risen in price). With delivery - either all products will grow by 5-10%, or by default there will be paid delivery. But most likely, there will be some kind of mix (special - affordable - prices with a large purchase, 3 free deliveries per month, etc.).
- The increase in food prices will remain double-digit, - says Maxim Krivelevich, Associate Professor of the Department of Finance and Credit at FEFU:
- Firstly, because at the moment there is no visible, let's say, mood to abandon quarantine measures in large countries, such as, for example, the USA, Germany, Japan. Then the "overflow" system operates. That is, the problems, for example, of the United States, as a consumer of raw materials - transport, logistics, etc. - affect other participants in this market. If factory conveyors stop in Germany, then in other countries it slows down the activities of companies that depend on German supplies.
The first part of the problems is that the bureaucracy in a number of large countries really liked the idea of introducing quarantine regimes – with countless restrictions on the rights and freedoms of citizens. This is a non-Russian factor, and it will not go away in a couple of months. It will be good if it ends by the next cold season.
The second is the domestic factor. Political tension is a very expensive hobby. If you allow yourself, so to speak, international tension, and it does not matter whether you are absolutely right or absolutely wrong– then you get a failure in the economy. It's inevitable. It's like when cars collide at an intersection – it doesn't matter who ran a red light and caused the accident - both participants will suffer losses and will be late for scheduled meetings.
"SP": - But such "accidents" in the international arena happen all the time…
- I think no one will argue that now, even in relation to the recent past, the situation here is significantly aggravated. For example, in 2002, Russia did not have anything even remotely resembling the foreign policy tension that we are witnessing now. There were no events related to Georgia in 2008, Ukraine in 2014, there were no sanctions, anti-sanctions, etc., but there was a huge influx of investments.
After all, 2002-2004 was a period when really just half of the world dreamed of working in Russia. Because here salaries in dollars were higher than in Canada or the USA in positions of the same level. There was free movement of goods.
Firstly, everyone dreamed of investing money in Russia, and secondly, everyone dreamed of introducing their goods to Russia. Hence, there was an excess of both, and, as a result, there was a more comfortable market situation. At prices – several times less for the raw materials that we sell. That is, maybe there was less money, but the mood was better. This is the second and very powerful factor.
And there is a third factor. This is an approach to monetary policy. An increase in the rate automatically leads to an increase in the cost of loans. And all models of economic growth have two factors - labor and capital. An increase in the rate leads to a rise in the price of capital, but also of labor. Why? The purchase of labor on the market (salary) is the result of negotiations.
Yes, they are not equal, not fair, but it's still a negotiation. Accordingly, expecting inflation, people will demand an increased salary. And now the increase in the rate leads to the fact that both of the two factors of production become more expensive. And if your production cost is growing, then everything is simple - the consumer pays for everything.
Because there are three in the market: the state, which is not in a hurry to help the population, the manufacturer, which no longer has its own margin of safety (for a year and a half of quarantine, few people have anything left after a decrease in profits), and the consumer. If the state does not want, and the manufacturer cannot reduce its appetites, then the consumer will have to squeeze.
"SP": - Will prices increase constantly, without periodic reduction?
- Winter - both the first quarter and the fourth - will be quite tough in this regard, and the summer months - August, September - will statistically show a slight decrease in prices due to seasonality - fresh fruits, vegetables. I emphasize that I am not talking about a decrease in prices, but about a decrease in statistical indicators. Because, conditionally, neither chicken, nor beef, nor fish– nor anything that allows a person to eat normally, will become cheaper. Simply due to slightly cheaper fresh fruits and vegetables, a statistical decrease in the price of the consumer basket is formed. Which, again, will be true, but not the whole truth. It will just be a reflection of the seasonal nature.
And this is still without taking into account natural disasters - droughts, crop failures, etc., which may happen or will bypass us - we do not know how to predict this yet. And also, this is without taking into account how things will turn out for the partner countries, what initiatives the Ministry of Agriculture will have, whose actions may lead to shortages and price increases, etc. Here, without taking into account this spontaneity, there will be a plus 10% to plus 20% price increase.
