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Jan 3, 2022
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Prices 2022: Food and cosmetics will ambush the Kremlin

Prices 2022: Food and cosmetics will ambush the Kremlin

Photo: Alexander Ryumin / TASS

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 still do not take into account possible natural disasters and other emergencies in Russia and its partner countries.

– Due to the ongoing US dollar emission, logistical disruptions, our monetary policy, we cannot expect price stabilization in 2022, – believes Associate Professor of the Faculty of Economics of the RUDN University Sergey Chernikov:

– Therefore, it is easier to say what prices will grow relatively below average. Most likely, cars, clothing and electronics (primarily smartphones and laptops) will rise in price the slowest. In 2021, these groups of goods have already hit the “glass ceiling” of the declining purchasing power of the population. Therefore, growth is expected here at the level of official inflation. The rest – food, medicine, excise goods, household chemicals, cosmetics and hygiene products – will continue to grow (perhaps even “racing”).

A deficit 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 a modern economy – there is always another, more expensive or less convenient way of supply.

Another thing is that due to falling incomes of citizens, there may be a shortage or disappearance of specific goods in the assortment. For example, instead of the usual ten brands of olive oil, there may be two, and worse quality. This danger in 2022 is quite real and will occur for a wide range of goods.

In times of crisis, consumers always redistribute the budget. Key areas such as medicine, food, travel, education continue to be paid for while moving towards cheaper counterparts. Less important elements are either thrown away completely, or become a “special case”.

The trouble is that consumers do not immediately understand 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 lowers the standard of living.

– Food inflation in Russia is growing at a faster pace, – notes Olga Belenkaya, Head of Macroeconomic Analysis Department of FG FINAM:

– With a general inflation rate of 8.4% (yoy), in November, food prices increased by 12%, and for a number of types of food the price growth was much higher. Next year, the situation with food prices may remain difficult against the backdrop of record prices for gas and electricity in Europe, which may lead to a reduction in the production of fertilizers, compound feed and an increase in their cost, which will be carried over to the prices of agricultural products.

Although the government is taking steps to “decouple” world prices from domestic prices 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 component is still imported.

In addition, oil products are becoming more expensive, the cost of labor, and interest rates on loans are growing.

Much will depend on the 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 a 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, – considers Director of the trading and manufacturing company Cuore Nikolay Novoselov:

– On the one hand, there are not so many new groups for labeling. But what is important is that the introduction of a new product into the labeling increases the price of not only a specific group of products, but also the entire market segment. This is primarily 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. The consumer will, of course, pay for this.

At the same time, some of the small stores will simply close, which will lead to a decrease in competition and, again, to an increase in prices in the entire segment.

This has had a profound effect on fish and meat in the past year. Products from the category of markings will rise in price 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 goods will grow by 5-10%, or there will be paid delivery by default. But most likely there will be some kind of mix (special – affordable – prices for a large purchase, 3 free deliveries per month etc.).

– The rise in food prices will remain double-digit, – believes Maxim Krivelevich, associate professor of the Department of Finance and Credit, FEFU:

– Firstly, because at the moment, we do not see, let’s say, the 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. – also affect other participants in this market. If in Germany factory conveyors stop, in other countries it slows down the activities of companies that depend on German supplies.

The first part of the problem 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 anywhere in a couple of months. It will be good if this is over by the next cold season.

The second is the internal Russian factor. Political tension is a very expensive hobby. If you allow yourself, so to speak, international tension, and it doesn’t matter if you are absolutely right or absolutely wrong, then you get a failure in the economy. It’s unavoidable. It’s like a collision of cars at an intersection – it doesn’t matter who drove into a red light and provoked the accident – both participants will suffer losses and be late for their scheduled meetings.

“SP”: – But such “accidents” in the international arena occur constantly …

– 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 had nothing even remotely reminiscent of the foreign policy tension that we are witnessing now. There have not yet been events related to Georgia in 2008, Ukraine in 2014, there have been no 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 United States for positions of the same level. There was free movement of goods.

Firstly, everyone dreamed of investing money in Russia, and secondly, everyone dreamed of bringing 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 an increase in the cost 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 this is still a negotiation. Accordingly, expecting inflation, people will demand higher wages. And the increase in the rate leads to the fact that of the two factors of production, both become more expensive. And if your production cost is growing, then everything is simple – the consumer pays for everything.

Because there are three on the market: the state, which is in no hurry to help the population, the manufacturer, which no longer has its own safety margin (after a year and a half of quarantine, few have anything left after the decline in profits), and the consumer. If the state does not want, and the manufacturer cannot reduce his appetites, then the consumer will have to squeeze.

“SP”: – Will the prices rise constantly, without a periodic decline?

– 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 and vegetables. Let me emphasize that I am not talking about a decrease in prices, but a decrease in statistical indicators. Because, conventionally, neither chicken, nor beef, nor fish – nothing that allows a person to eat normally will not become cheaper. Simply due to the 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 simply be a reflection of the seasonal nature.

And this is without taking into account natural disasters – droughts, crop failures etc.that can 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 develop for the partner countries, what initiatives the Ministry of Agriculture will have, whose actions can lead to a deficit and an increase in prices, etc. Here, without taking into account this spontaneity, there will be from plus 10% to plus 20% price increases.

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