The Central Bank of the Russian Federation published a regular report “Regional Economy: Comments of the Main Directorate of the Bank of Russia” No. 13 July 2022”. Economist Dmitry Prokofiyev carefully studied it and considered it a masterpiece (no kidding!).
Before commenting on this document, he quoted its main provisions, highlighting in italics the most notable passages:
“...the population of the country, adapting to the economic events that have taken place, chooses a savings strategy, reducing current consumption.
In April-June , the proportion of respondents expanding their subsidiary farming and planning to stock up, including through purchases at grocery discounters, increased.
Economic turbulence has affected the assessment of personal wealth . The share of respondents who indicated that their financial situation worsened in June amounted to 36% after the maximum level in May (40%).
Significant financial problems are experienced by the middle class , which is forced to refuse to purchase expensive household appliances, smartphones, apartments, cars, and foreign tours. The Large Buys Index has been at its lowest level since April.
As a result, in April-May, the population switched to a savings model of behavior, choosing bank deposits as one of the main accumulation mechanisms. The growth in the attractiveness of savings was facilitated by the decline in inflation expectations in April-May to levels comparable to the beginning of 2020.
In June 2022, compared to March-May, the share of respondents who attract credit resources to finance current expenses decreased. The share of respondents who indicated consumer loans as preferable has fallen. Against the background of the population's confidence in a moderate increase in real estate prices, the number of those planning to purchase real estate with a mortgage has increased.
At the same time, consumer expectations of the population in June were more optimistic than in March 2022 regarding the future level of production, lower unemployment, and changes in personal financial situation. Respondents noted their readiness to expand spending on the purchase of household appliances, increasing purchasing activity
At the same time, current consumer sentiment remains pessimistic: despite the improvement in estimates in May-June, their level remains below 2021 levels.
A significant gap between the current negative background and positive expectations will encourage the population to redistribute consumption in favor of the current one, reducing the savings rate . A high level of unanchored inflation expectations also limits the sustainability of the savings behavior of the population…”
- The government and the financial regulator "in the short run" have fully achieved the goals set in early spring. The promised "structural transformation of the economy" has worked.
- Consumption of people is suppressed, there is no demand for imports, which allows the government to dispose of the grandiose foreign exchange earnings at its discretion.
- "Middle class" - everything. An end was put to his free life, as Ostap Bender used to say, “you will have to retrain as a house manager” - to be hired “on the budget”, and pray that you are not fired (which the “former middle class”, in general, does).
- People were not up to loans.
- People understood everything. It is necessary to save up for a living and work "for food and an apartment." Equip a subsidiary farm, “make“ stocks”, purchase canned food“ incl. in discounters. Actually, as it was in the USSR, what they wanted was what they got.
By the way, about the "apartment". People are ready to pay for the superprofits of the owners of the construction complex. Under our conditions, “unpaid” mortgages tie people to the workplace more reliably than Stalin’s decrees prohibiting unauthorized dismissal from enterprises and Khrushchev’s decrees against parasitism did. They will work and pay.
- The only disturbing note in the text is “a significant gap between the current negative background and positive expectations” followed by not very intelligible arguments about the instability of the savings model and inflationary expectations. No one knows what will happen if "positive expectations" diverge from reality, the financial regulator hints.