Inflation Robs Russians of Buying Power

A basic barometer of economic activity in this tidy town south of Moscow is the pirozhok, a small pie filled with cabbage and meat that is a staple of the Russian diet.

In good times they sell briskly, snapped up by hungry commuters at Arina’s Hangout, a tiny shop near the train station. But sales are down by almost half, a gloomy reflection of Russia’s economic slump.

“There were just physically fewer people,” said Irina A. Safonova, the owner of the shop, which on a recent weekday was serving pies to a slow trickle of customers. “We used to have lines. Now look at it.”

Russians are experiencing the first sustained decline in living standards in the 15 years since President Vladimir V. Putin came to power. The ruble has fallen by half against the dollar, driven by the plunging price of oil, the lifeblood of Russia’s economy. As a result, prices of imported goods have shot up, making tea, instant coffee, children’s clothes and back-to-school backpacks suddenly, jarringly expensive.

Making matters worse are the retaliatory bans that Russia placed on food imports after the United States and the European Union imposed sanctions for its actions in Ukraine, a policy that took a turn for the weird this month when the government destroyed thousands of tons of what it said were illegally imported foodstuffs including cheese and peaches.

The reduced supply means that what remains costs more, even if it is locally produced. Russians are paying a third more for sunflower oil, a fifth more for yogurt and three-quarters more for carrots compared with a year ago, according to government statistics. (The Western sanctions have driven up the cost of borrowing for Russian companies, but they have not had a direct role in the inflation that is raiding Russian pocketbooks.)

Inflation has reduced the purchasing power of Russian wages by more than 8 percent in the second quarter, compared with the same period last year, according to figures published by Russia’s Central Bank at the end of July. And in a sign that the worst is far from over, the economy contracted by a steep 4.6 percent in the second quarter, compared with last year, and officially entered its first recession since 2009.

“It’s horrible,” said Elena Shcherbakova, a 47-year-old shoe saleswoman whose income, based in part on commissions, has fallen nearly a third since last year. She says she now shops at discount supermarkets, buys the cheapest kind of sausage and carefully counts containers of yogurt instead of throwing them into her cart by the handful the way she used to.

It is not clear what, if anything, this means for Mr. Putin. The trouble pales in comparison with the turbulent 1990s, when people’s wages went down by nearly half. Russians have an immense capacity for stoicism, and ubiquitous home gardens make budgets more flexible. Mr. Putin’s popularity ratings have remained high since last year’s annexation of Crimea, which was wildly popular among Russians.

Still, the math is proving tricky. In a new draft budget released in July, the Ministry of Finance proposed halting the practice of raising pensions to keep up with inflation, a politically controversial move that would deliver a blow to Mr. Putin’s most loyal base. Investment, food for a hungry economy, has collapsed since the Western sanctions, which also blocked Russia’s ability to borrow on global markets.

“They have no way out,” said Sergei Guriev, a professor of economics at Sciences Po in Paris. “Unless oil prices go up, they are really looking at a dead end.” Without further spending cuts and if oil prices remain around current levels, the government will use up its reserve fund, created when the price of oil was high, in about a year, he added.

Mr. Putin’s opponents argue that the nationalist talk washing over Russia is being projected by his government to distract attention from the fragile economic situation. They describe it as a battle in every Russian home between the television (the source of government propaganda) and the refrigerator (whose shrinking contents could eventually prompt discontent).

In Moscow, some in the educated upper classes agree.

“All that Ukrainian noise covers up our internal problems,” said Maria Novychkova, a manager in a textile company who was walking a foot scooter in a park last month. Her company has put employees on four-day workweeks. She cannot afford to vacation abroad because of the weak ruble. “He says we are an ideal country, but we are not,” she said, referring to Mr. Putin.

The crisis in Ramenskoye is like a car crash in slow motion, gradual but destructive. The town has tried to modernize in recent years, with an airport for private jets and a PepsiCo juice factory. It is also a bedroom community for Moscow. Commuters are Arina’s main customers.

Ms. Safonova, the owner of the pie shop, first noticed a drop in business last fall. There were fewer commuters, and those who remained spent less freely. Once-packed minibuses emptied out. The checkout clerks at the nearby Kopeika supermarket had their wages cut. Then in March, PepsiCo announced that the juice factory in town was closing, citing the bad economy.

Prices began jumping. Nescafé went to 389 rubles, about $5.96, from 220 rubles. Ahmad Tea jumped to 319 rubles from 191. Ms. Safonova knew about the sanctions, and that the falling ruble made imports more expensive, but sometimes the logic eluded her. A spike in the price of mushrooms this spring was particularly puzzling.

“I said, ‘Why, why?’ These are grown near Moscow, right here, not in Europe!”

By summer, the pie shop’s sales had dropped by nearly half, and Ms. Safonova had to lay off four of her eight employees. She now works 18-hour days to compensate. She gave up her big kitchen and now mixes dough five times a day instead of 10.

Across Russia, the crisis has prompted a collapse in consumption. International airline travel has fallen almost a fifth since last year, and car sales are down 36 percent in the first half of this year. The production of train cars fell by a third, said Natalia Zubarevich, a researcher at the Higher School of Economics, because fewer goods needed to be transported. In another measure of economic distress, household ruble debt in arrears is up 43 percent since last July, according to the Central Bank.

“The cost of the crisis is being borne by everyone, spread around like butter on bread,” said Vladimir Gimpelson, the director of the Center for Labor Market Studies at the Higher School of Economics.

As business shrivels across the country, Moscow remains an economic beacon.

Alexandra Vasilieva, the cashier at Arina’s Hangout, is from the province of Smolensk in western Russia, where work had dried up so completely that her husband, a window installer, was making just a small fraction of his previous salary. So they came to Ramenskoye and now he commutes more than two hours each way to Moscow for mediocre money. Her son, an auto service worker in Smolensk, lost almost a third of his salary because fewer cars were being brought in for repairs and servicing.

“In the provinces, the wages are too small to live on,” she said. Her monthly salary in Ramenskoye — 20,000 rubles — is sinking in value, worth just $305, down from $416 in May.

As for Crimea, if she thinks about it at all, it is through the lens of economics.

“I’m sick of Crimea,” Ms. Vasilieva said. “I’m sad for people,” she said, referring to Ukrainian refugees, “but why are they getting all this government assistance?”

Further pinching Russians’ pocketbooks are trims the government is making to benefits doled out when times were flush. Pensioners in the Moscow region can no longer ride free on the Moscow Metro, a change that affects more than a million people in one of the most densely populated regions in the country. Apartment owners across Russia must now pay a repairs fee every month, which has prompted protests in some regions.

Lyudmila, 68, a retired accountant who declined to give her surname, said it was no longer worth it for her husband, an artist who works as a designer on housing projects, to commute into the city to supplement his pension — $153 a month.

“If all you have is a pension, you can’t afford to buy shoes,” she said, sitting on a park bench next to her grandson, who was eating a tall white puff of cotton candy.

Still, the discontent seems to bypass Mr. Putin.

“Honestly, we are so proud he is our president,” said Vyacheslav, 75, a retired factory manager, who also refused to give his surname, as he steered a mostly empty grocery cart through a Kopeika supermarket here last week. “Thanks to him, we have all of this,” he said, gesturing toward a glass display case of beet and potato salads, fried eggplant and pieces of chicken.

Then he called his wife to tell her that they were out of the cheapest hot dogs.