ALEXANDER KNOBEL EXPLAINED APPRECIATION OF PRICES IN RUSSIA DESPITE THE STRENGTHENING OF THE ROUBLE EXCHANGE RATE

The rouble has currently appreciated nearly 20% against the US dollar as compared with the beginning of this year before a new round of sanctions. However, according to Rosstat, prices for numerous goods, primarily, non-food goods are still by tens of percent higher than at the beginning of the year. It also concerns household cleaning goods, personal hygiene products and technical devices. In particular, by Rosstat’s data an automatic washer costs currently 30% more nationwide than early this year, while prices for а two-compartment refrigerator appreciated by 20%.

According to the analysis carried out by the NG daily, large Russian retailers’ current prices for automatic washers of the same brand with identical or nearly identical performances with prevailing exchange rates taken into account are 1.5 times higher than in Kazakhstan or Poland. A similar situation is observed with prices for some vacuum cleaners and TV-sets.

It could be explained by a difference in the level of wages. For example, in the US dollar equivalent wages in Kazakhstan are substantially lower than in Russia: in Q2 wages in Kazakhstan were equal to $650 a month against nearly $1,100 in Russia at the current exchange rate. But gross salaries (before tax) in Poland are higher in the US dollar equivalent than in Russia: $1300 (incidentally, Rosstat presents an average nationwide salary before tax).

Alexander Knobel told the NG daily that the segment “electric and other home appliances” had the highest share of imports in final consumption owing both to imports of finished goods and a high share of imported parts in domestic production.

“In a normal situation, appreciation of the rouble against the US dollar and euro would have facilitated a marked decline in rouble prices because international supplies of such manufactured goods are normally carried out at fairly stable prices in reserve currencies,” Alexander Knobel said. But now the situation is different.

If prices are expressed in US dollars and euros with all trends taken into account, it becomes clear that prices for some types of household appliances in the US dollar equivalent have appreciated by 40%-50% in Russia since the beginning of the year, Alexander Knobel says.

“What factors could drive up prices for goods with a high share of imports despite the appreciation of the rouble exchange rate? These factors include a disruption of the existing supply chains, increased risks associated with goods deliveries and manufacturing, the exit of large companies from the market and restrictions on capital withdrawal,” Alexander Kbobel noted.

“Goods have often to be transported to bypass the common border. The development of new routes can be costly and lengthy. The more intermediaries involved in deliveries, the higher the costs,” Alexander Knobel notes.

By Alexander Knobel’s estimates, a disruption of logistics chains hits the hardest the manufacturing, which utilizes imported components, rather than importers of finished products because in case of the former assembly lines have to be adjusted.

“The exit of large companies with well-run sales systems has led to a decline in competition on the market and, consequently, to price rises. Those companies which have decided to stay on encounter restrictions on capital withdrawal and input higher risks associated with their business operations in Russia, thus increasing business marginality,” Alexander Knobel added.

Feverish demand for household appliances late in February and March was another factor. “After demand returned back to normal, prices which appreciated considerably during panic-buying adjusted downwards, but not completely because of downward price stickiness,” Alexander Knobel notes.

It means that prices may appreciate quite dramatically, for example, in case of the national currency weakening or panic-buying, but when the national currency appreciates again and panic-buying stops, they decline very slowly.

So, Alexander Knobel notes that one can partially agree with the argument that some imported goods cost now as much in roubles as they would have in a normal situation with the rouble exchange rate of Rb80-Rb90 per $1.