By Andrei Skvarsky.
Sentiment among Russian consumers fell sharply in July after an apparent tentative upward trend during in the previous couple of months, according to the findings of monthly surveys by a Deutsche Boerse intelligence subsidiary.
The MNI Indicators intelligence firm argued in a report that the decline was largely the result of the European Union’s decision to extend its Ukraine-related sanctions against Russia and “the rouble rout brought on by falling oil prices”.
The MNI Russia Consumer Sentiment Indicator, an index updated monthly on the basis of the surveys, which are polls among urban Russians, showed a 7.4% month-on-month drop in July. As for many months before, pessimistic responses considerably outnumbered positive ones.
The polls, launched by MNI Indicators in March 2013, involve telephone interviews with at least 1,000 people selected randomly by computer.
The respondents are asked five questions – what their current personal financial situation is compared to that a year ago, what they expect their financial status to be like in a year’s time, whether they would be willing to buy major household items, and how they see overall business conditions in Russia in a year’s time and for the next five years.
The processing of the answers results in rankings on the MNI Russia Consumer Sentiment Indicator, a scale where levels above 100 represent the predominance of positive responses, magnitudes below 100 mean there were more negative than positive answers, and the 100 level means there were as many positive as negative replies.
July’s indicator was 70.8 compared with 76.4 in June, offsetting the improvement achieved since March.
Responses to all five questions showed a sharp month-on-month decline, and high-income households were the most pessimistic they had ever been in the survey’s history, the MNI Indicators report said.
The grim short-term outlook for business conditions was the main factor behind the fall in overall sentiment.
Though because of the declining oil prices a lot fewer consumers expected petrol to go up, concern over the current cost of living rose to a six-month high on the back of a hike in utility prices, and more respondents than before anticipated that prices would rise over the coming year.
Despite June’s interest rate cut by the central bank, more consumers than in June expected the cost of credit to rise, though there was still less concern over the cost of loans than at the start of the year, when the central bank embarked on its course of policy normalisation, the report said.
Said MNI Indicators chief economist Philip Uglow:
“External factors turned much more unfavourable over the past month and this is reflected in the sharp reversal in consumer sentiment. Since the conclusion of our July survey, the rouble has weakened further in spite of a stabilisation of oil prices, which could have some further downside impact on confidence.
“While the CBR has been able to cut interest rates five times this year, an uptick in inflationary expectations threatens to derail the central bank’s plans to further normalise borrowing costs even though the dire weakness throughout the survey continues to suggest that further easing is required.”
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