Ukraine war sanctions hit home for everyday Russians

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Instead, the 30-year-old software developer bought 10 pounds of rice and buckwheat after the computer became unavailable and the price of the car doubled. He is planning to help relatives plant potatoes this year on their farm, 500 miles from his Siberian hometown of Krasnoyarsk.

“Life is on pause now,” he says.

The impact of sanctions is spreading through Russia’s economy, providing early indications of the pressures the country will face. Inflation has jumped, imports are growing scarce and Russians are girding for tough times. Foreign companies halted business with Russia, causing job losses and hobbling industries.

Next, economists expect inventories to be depleted and unemployment to mount.

Many Russians aren’t waiting. They are scrambling to get imported goods such as Nespresso pods and contact lenses, and are stocking up on staples, even though stores generally remain well supplied. Their buying could speed up inflation and worsen the impact of the sanctions.

“It’s standard Russian panic, instincts that are from Soviet times,” said Natalia Zubarevich, an expert on the economy of Russia’s regions at Moscow State University.

Mr. Bazhenov doesn’t see it as panic. “I have a child. Let there be enough for a week, just in case, and in that time we can get to our relatives,” Mr. Bazhenov said, adding his economic woes pale in comparison to what is happening in Ukraine.

High demand has pushed sugar prices up 46% this year. There is no shortage as Russia has become a sugar exporter over the past 20 years. But Russians remember when it was scarce and don’t want to be caught short when they make jams from the fruit in their orchards. Sugar can also be used for homemade vodka, which was once a tradable commodity inside Russia.

At the cafeteria of a Moscow office of Sberbank, Russia’s biggest lender and the target of U.S. sanctions, packets of sugar used to be piled high, a worker there said. Now employees need to ask for a packet when they get their coffee or tea. A bank spokeswoman said the story was “fake news being deliberately disseminated to increase tension around social dynamics in Russian society.”

Early data show how rapidly the sanctions have hit the economy. The first independent data for March showed that Russian factories had their biggest drop in activity since the start of the pandemic. That is a sign that job losses are likely. The European Bank for Reconstruction and Development projected the economy will shrink by 10% this year with no rebound in sight.

The weakening economy will make it harder financially for Russia to wage war in Ukraine. The most worrisome statistic right now is inflation, which is up 8.9% so far in 2022, according to Russian government statistics. Consumers expect prices to rise 18% over the next year, according to a central bank survey taken in March.

Consumers’ expectations of more inflation have set off a cat-and-mouse game with the government. If consumers believe goods will get more expensive, they buy more now. That boosts demand and potentially pushes prices higher still.

Government officials are trying to break that cycle, arguing that inflation will be temporary. If consumers wait out the current rush, “prices for some products might even lower,” central bank chief Elvira Nabiullinasaid in a recent speech.

One short-term economic success: Ms. Nabiullina stabilized the ruble in recent weeks. But it came by way of a punishing interest rate increase and strict controls on converting money into foreign currencies, moves that slow the economy and hem in ordinary Russians’ financial ties to the outside world.

The expected increase in unemployment will force the government to boost social spending while funding the war. According to a February survey by state-run pollster VtSIOM, only a third of Russians have savings. The average monthly salary last year in Russia was 56,545 rubles, or approximately $670, according to state statistics agency Rosstat.

Oksana Neverova, a 56-year-old pensioner in Yuzhno Sakhalinsk, a city in Russia’s Far East, said the price of her favorite Vietnamese coffee is up by 50%. “It’s nothing new,” she said about price increases. She is expecting a boost in her pension to offset rising prices, adding she isn’t worried. “Everything is totally fine,” she said.

Since 2014, the country has tried to build what analysts call Fortress Russia to reduce its dependence on imports. That effort has largely failed. In 2020, imports accounted for 75% of sales of nonfood consumer goods in the Russian retail market, according to a study by the Higher School of Economics in Moscow. Studies show the self-sufficiency effort also drove prices higher.

Russian staples known as the borscht set—the vegetables needed for the beloved red-magenta colored soup—also includes imports. Since the start of the year, the price of beets, cabbage, carrots and potatoes are up by double-digit percentage changes.

“The Russian economy right now is tied to the global economy, not just for bananas and coffee, but for things like carrots and potatoes, too,” Moscow State’s Ms. Zubarevich said. “We buy all of this from somewhere when there is not enough of our own.”

Russian business daily Kommersant reported last week that the 2021 harvest is running out and sellers are trying to buy imported produce like young cabbages produced in Turkey, Egypt and Uzbekistan. Those cabbages haven’t ripened yet, Kommersant reported.

Consumers have grown used to things like bananas. Gennadii Golovan owns two small grocery stores on Russia’s Sakhalin Island, about 125 miles north of the uppermost tip of Japan. Wholesale prices for bananas rose 25% in the past few weeks and people cut their purchases, though they are now buying again, he says. Mr. Golovan benefits from a government stimulus program that gave him a free liquor license, which would normally cost 65,000 rubles, for next year.

Alexey Furnosov, an auditor, lost money when the Russian stock market plunged at the start of the war and has been watching rising prices hit his pocketbook. He now says he will plant the entire garden at his dacha in Vladimir, a historic city near Moscow, this year with potatoes and zucchini for his young child, plus tomatoes and cucumbers to marinate for the winter. At work, his boss told the staff to conserve office paper.

Russia’s major cities have fared better than the rest of the country in recent years. They have also grown more entwined with the global economy. Workers have faced job losses as Western businesses shut. That has rippled across the economy.

Tatyana Androsova, a 35-year-old freelance graphic designer in the Moscow region, estimates that her income declined by about 30% to 40% in March. Her clients, including a hair salon, were worried about their own costs and business prospects. She lost another source of income when Instagram was banned by Russia. She had been doing video and photo montages on the social-media platform for small-business customers.

An urgent concern was her access to the Adobe Inc. software that is necessary for her work. She couldn’t pay for itbecause her Russian-issued Mastercard no longer worked outside of the country.

She got a friendly client in London to pay for an Adobe subscription, while she would help with graphic design in return. “It’s a sort of barter,” Ms. Androsova said.

 

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