OREANDA-NEWS. January 20, 2015. Sberbank Investment Research, the research department of Sberbank CIB, is publishing its tenth survey of the pan-Russian consumer, the Sberbank CIB Ivanov Consumer Confidence Tracker, which monitors consumer spending, savings and confidence trends across the country.

The tenth tracker indicates a drop in the consumer confidence index from the 3Q14 level of –7% to –24% in 4Q14. This is attributed to inflation fears, a huge spike in ruble depreciation concerns and worsening job prospects amid geopolitical tensions and a stalling economy.

The main findings of the survey are shown below:

The index of country wealth plunged from –19% in 3Q14 to –51% last quarter. Rising inflation, dimmer employment prospects and sharp ruble devaluation are the main contributors. This also dragged on personal wealth expectations over the next 12 months.

The index of conditions for big purchases fell from –12% in 3Q14 to –22% in 4Q14 notwithstanding a massive spike in sales in some non-food categories, significant  ruble depreciation in mid-December and a consequent wave of price increases for imported products. That said, we believe the index’s decline was due more to general macro uncertainty and people’s gloomy expectations that will prevent them from big purchases in 2015.

Unemployment edged up 60 bps Q-o-Q to 10.6%, while the net hiring index fell from –33% to –37% in 4Q14, as the number of respondents who said that their employer was cutting staff rose from 43% to 45%. The share of respondents who think that they may lose their job grew to 35%, after staying stable at 30% throughout the year. No wonder people became less upbeat on the prospects for their employers. The share of companies expected to grow over the next 12 months declined from 30% to 22%. Average wages were flat at R30,000 in December, as was the share of food expenditures in the Ivanovs’ budgets (38%). Meanwhile, all other household budget expenses (except for utility payments) declined.

Savings data showed slight deterioration. The share of Ivanovs with no savings was at 42% (versus 37% at midyear), while the average share of monthly income saved declined from 8.9% in 3Q14 to 8.3% in 4Q14. This suggests that households are now digging into savings to finance current consumption.

The share of price-sensitive customers rose to 73% in December, up from 69% in September, and the Ivanovs are trading down: 60% of respondents are trying to save on staples, and a net 28% admitted that their non-discretionary spending declined over the past quarter. In discretionary spending dining out is the main victim, with 70% of respondents cutting back on this, followed by entertainment (63%) and vacations (50%).

Overall food inflation spiked to 14.9%, according to Ivanovs’ observations, while shelf inflation at public retail chains continued to be significantly lower at 8.9-9.6% y-o-y (reflecting price investments). So the value proposition of the largest chains is 5-6% better than the market, which gives consumers the opportunity to spend less than they would at other stores without reducing their consumption. So customers are flocking to public retail chains, which should be reflected in solid traffic growth in upcoming trading updates.

Ruble devaluation pushed some consumers to purchase durable goods that they would have otherwise purchased later, thereby trying to protect their savings from expected price increases. Around 15% of respondents purchased some consumer electronics items or household appliances, 10% bought clothing, and 4% bought a car.

46% kept their family consumption budget unchanged in terms of structure and ruble value (implying lower consumption in real terms). 20% of respondents began to build up food inventories, which could weaken demand in 1H15. Given that a higher share of these one-off purchases were made in non-organized retail, modern retail should be more resilient and its market share growth will accelerate in 2015.