Page 40 - RUSRptOct18

4.5.3 Retail sector dynamics
The first tier dataset for August brings further evidence that the growth in non-food purchases is gaining strength . At +4.2% y/y in August, this uptick likely reflects households engaging in precautionary spending in an attempt to get ahead of the spillover from the FX shock and the VAT rate hike in non-food prices. At the same time, the setback in food sales continues, with growth slowing to +1.3% y/y. All the other data largely confirms what is already known: nominal wage growth is double-digit, the recovery in real disposable income is stumbling, food producer prices are accelerating and the expansion in construction activity has once again been deferred.
Retail turnover edges up slightly to 2.8% y/y , from 2.7% y/y. The overall improvement is for the most part due to non-food sales, while food purchases continued to be a drag.
Non-food purchases growth surges to 4.2% y/y . We think that the expansion in non-food growth is set to continue, given both i) the robust growth in real wages and retail lending, and ii) customers’ concerns about a forthcoming increase in non-food prices on the back of the VAT hike and the recent FX shock.
Slowdown in food sales echoes the story of shifting seasonality in fruits & vegetables. Food sales started to decelerate in July, with the slowdown coming from the purchases of vegetables (-18.3% m/m vs. -2.5% m/m in July 2017). Most probably, this stems from the shifted seasonality in fruits & vegetables prices: households cut down on expenses in June 2017 before catching up again in July-August 2017, which created the high base effect for July-August 2018.
40 RUSSIA Country Report October 2018 www.intellinews.com