January 28, 2015 by AK
The weak rouble and retalliatory import bans imposed by Moscow have made food so much more expensive that a massive poverty relief program may be needed to keep millions from going hungry and rebeling. The Kremlin won’t be able to manage anything as sophaticated as foodstamps. True to its Soviet roots, Moscow would rather introduce price controls of all sorts: a portal to a cold, bleak, monochrome Venezuela with nuclear weapons.
Am I exaggerating?
Official forecasts for 2015 Russian CPI inflation vary but I mostly hear 13-15%: bad but not nearly Zimbabwean. One could counter that US inflation peaked at 13.5% in 1980 and GDP growth in 1979-82 was pathetic. I’m sure Russian propagandists will be using this comparison in their optimistic speeches, pointing out that Volker’s Fed had the prime rate at 21.5% at some point vs. the Russian central bank’s current 17%.
Apart from Russia 2015 being a completely different animal from the US ca. 1980, one depressing fact is that the weight of food in the Russian CPI is about 30%. Other prices held equal, a 50% hike in the price of all foods will translate to a 15% hike in the CPI. I suspect this is more or less what’s happening in Russia.
One again, looking back at 2012 or 2013, about 30% of household spending was on food, excluding alcohol. On average. Without looking up Russia’s official distribution of wealth, I understand that the number of households who spend more than half their income on food is several million at least. Natalia Tikhonova, a professor at the Higher School of Economics, estimates that one quarter of Russians are “poor” according to her criteria:
Rosstat [the Russian state statistic service] relies on the cost of the consumer basket; we use this principle: a poor person is one whose life in one’s native country is so much worse than the bulk of its residents’ that one cannot sustain the minimum socially accepted standards of consumption…
There are three key signs of poverty. The most important is being unable to secure adequate nutrition for oneself. We are not talking about variety, rather about feeding oneself to the full, say, with cheap pasta, and being able to buy some meat products twice a week. At least bologna at 130 rubles per kilo [about $4/kg at that time]. As a rule, these people cannot afford non-free medical care even when it is acutely needed. And they have very poor housing conditions.
In simple monetary terms, if food gets 30% to 50% more expensive and other prices hold steady, a household that used to spend half its income on food will now have to spend 65-75%; a 60% share will grow to 78-90% and so on. Perhaps these people do not make up 25% as prof. Tikhonova claims – at 10% of all Russians, they would still number 14-15 million.