Retail in Russia is recovering on the back of rising incomes, and non-food sales grew strongly in August, up 4.2% y/y from a growth of 3.3% a month earlier, Rosstat reported on September 19.
However, the growth in food sales was less strong, up to 2.8% in August from 2.7% the month before. Overall, the composite retail sales turnover was flat at 2.4% where it has been for the last four months, the data shows.
Analysts say that the growth in non-food sales is probably temporary and driven by the increase in VAT from 18% to 20% that came into effect in July as households made some bigger ticket purchases to avoid the higher rates. Purchases were also driven by the fall in the value of the ruble in the summer on the back of US government threats to impose “crushing” sanctions in Russia this autumn. Traditionally Russians hedge against currency crises by putting some of their cash into goods that are easily resold like washing machines and cars.
Retail sales collapsed completely during the “silent crisis” years of 2014-2016 and only went positive again in April 2017, seven months after real wage growth also turned positive. Real disposable income growth (the money left after food and utility payments and adjusted for inflation) took even longer to go back into the black, and only went positive in February this year. However, although the average Russian has more money in their pocket, the growth in real disposable incomes has slowed over the summer and will be depressed going forward following the VAT hike this summer and the uptick in inflation that increased through the 3% mark in July.
“Nominal wage growth is double-digit, the recovery in real disposable income is stumbling, food producer prices are accelerating and the expansion in construction activity has once again been deferred,” says Alexander Isakov, chief economist at VTB Capital (VTBC). “We think that the expansion in non-food growth is set to continue, given both i) the robust growth in real wages and retail lending, and ii) customers’ concerns about a forthcoming increase in non-food prices on the back of the VAT hike and the recent FX shock.”
Food sales started to decelerate in July, with the slowdown coming from the purchases of vegetables (-18.3% m/m vs. -2.5% m/m in July 2017), reports VTBC.
“Most probably, this stems from the shifted seasonality in fruits & vegetables prices: households cut down on expenses in June 2017 before catching up again in July-August 2017, which created the high base effect for July-August 2018,” says Isakov.
GDP growth in August in annual terms was 1.0% — the lowest level since the beginning of the year, according to data from the Ministry of Economic Development released on September 20. The annual growth rate of the economy in July was 1.8%, in June 1.1%, and in May 2.5%. In general, for January-August, the agency estimated growth at 1.6%.