Inflation severs Russia’s material comforts

During the years of the Soviet Union, most Russians got used to the trappings of a basic middle-class lifestyle. Everyone had the same flat, the same Lada car, the same Gorizont television set, the same crystal dessert set and worked in identical ministry offices.

While the collapse of communism in the 1990s destroyed most Russians’ standard of living, something resembling a middle class began to appear again between 2000 and 2008, as real incomes doubled and oil revenues kept wages and pensions well ahead of inflation.

However, since the onset of the economic crisis in 2008, real incomes have been stagnating as wages have been frozen – while inflation gallops on.

For a middle class that has cautiously got used to a steadily rising standard of living, the new reality is hard to swallow. “It is impossible to see this situation getting better,” says Alexander Golushkin, a specialist at the Russian Academy of Sciences Institute of Literature. “Everyone thinks we are going downhill.”

Opinion polls show a new pessimism reflected in flagging support for the ruling “tandem” of Dmitry Medvedev, president, and Vladimir Putin, prime minister. Though both are still rated highly, they have each seen their approval ratings drop by about 10 percentage points since the start of the year.

Mr Golushkin says the Rb25,000 ($900) he earns from his teaching job every month has gradually been whittled away by inflation, to the point where he has to think twice before shopping at his local super market, Perekryostok, a ubiquitous and affordable chain that has become one of the marks of middle-class membership.

Those on lower incomes tend to shop in the open air markets on the outskirts of Russian cities, where prices are cheaper.

Most of Russia is feeling the same pinch. “Wages are the same but prices are increasing all the time,” says Ekaterina Barova, who works as an editor in Moscow. She says that five years ago, shopping for two people for two weeks cost Rb3,000; now it is at least Rb5,000.

Since the onset of the economic crisis in 2008, which saw gross domestic product fall 8 per cent in 2009, wages in most sectors have been frozen, while inflation, temporarily damped by the crisis, has now picked up. In the first quarter of 2011, real wages fell 2.9 per cent, driven by higher inflation than expected.

While official inflation for the year sits at a little more than 9 per cent, many think this statistic is fudged. “I think the real inflation rate is being understated by official statistics,” says Sam Greene, a professor of political science at the Moscow-based New Economic School. Prices for many products have jumped sharply – petrol, for example, rose 6 per cent in the month from April to May.

Over the past five years, official statistics show prices rising 62 per cent but most Russians feel much greater increases. Oksana Vozhdaeva, a journalist from Tomsk in Siberia, says her utility payments have gone up from Rb1,000 to Rb2,500-Rb3,000 a month in five years and the cost of groceries has doubled.

The pressure on Russia’s middle class is a common feature of many large emerging market countries, which have seen inflation gallop ahead since the end of the global economic crisis. Since the relative prosperity of the Putin era, people hesitantly started to be optimistic once again, after the economic chaos of the 1990s, when most lived on the verge of bankruptcy and even starvation. Now, those hopes are being dashed and many are losing their foothold on middle-class respectability.

A lucky few are being swept into the ranks of the elite, with million-dollar flats in gleaming new blocks on the outskirts of Moscow and foreign cars. But the majority are losing ground.

“The middle class is splitting in two,” says Mikhail Chernysh, head of the social mobility section of the Russian Academy of Sciences Institute of Sociology. “One part is in danger of falling out of the middle class, while the other part is gaining.

“Getting into the middle class is very difficult in Russia and once you are there, it is hard to stay.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.