Russians are switching to cheaper food items as high inflation curbs purchasing power

Inflation in Russia soared to 20-year highs after it invaded Ukraine on February 24

Russians shoppers are switching to cheaper food items driven by a drop in real disposable income, the country's leading food retailer X5 Group said on Monday, as high inflation crimps purchasing power.

Though a stronger rouble and a drop in consumer demand have helped Russia rein in inflation, which soared to 20-year highs in annual terms after Moscow sent tens of thousands of troops into Ukraine on Feb. 24, consumer prices are still elevated.

Federal Statistics Service Rosstat last week said consumer prices have risen 11.60% so far this year. But food inflation in the second quarter of 2022 was running at 19.5% year-on-year, X5 said, up from 13.5% in the first quarter.

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Deflationary factors, including the strengthening rouble and increased supply of fruit, vegetables, eggs and sugar, are however slowing that growth rate, the retailer said.

In a trading update, X5 said net sales at its "hard discounter" Chizhik jumped 28 times year-on-year in the second quarter to 6.8 billion roubles ($120.4 million). Total net sales increased 18.6% year-on-year in the quarter to 647.3 billion roubles and it opened 300 new stores.

"X5 continues to focus on strengthening its positions in key regions of operations and expanding its presence and its market share organically as well as through selected tactical M&A opportunities," the company said.

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X5 could benefit from the exodus of foreign companies in opposition to Russia's actions in Ukraine. By the end of June, X5 had rebranded almost all the stores of the Prisma retail chain that it agreed to buy from Finnish firm SOK Retail for an undisclosed sum in mid-June.

High inflation has been the key concern among Russian households for years as it dents living standards, something that this year will be aggravated by the economic crisis triggered by unprecedented Western sanctions against Russia.

The Bank of Russia is widely expected to cut its key rate from 9.5% at its July 22 board meeting after Russia posted a drop in consumer prices in June.