09 October 2009

Bargain Expatriate Life In St Petersburg

What a difference a decade makes!

It is obvious there is much less buying power for the American dollar in St Petersburg than when we arrived in June 2000.  But until recently I was unsure how accurate my observations have been over the past nine years and didn't have a clear understanding of how things are different.  You have to be careful extrapolating statistics, as economics is a slippery subject.  My father's favorite book was How to Lie with Statistics.

Living the expatriate life in St Petersburg is different than the life of everyday citizens because our income arrives from the United States.  This affects my economic empathy.  Much of this income is adjusted up every year by the US government for inflation.  Variables in the US and Russia... inflation, prices, currencies, full or part-time  employment, and salaries, makes it hard to compare buying power.

Mac's Famous Rule of 5...

When we arrived in 2000 I started figuring the relative cost of things.  I called it the Rule of 5.  A shirt might cost 60 rubles.  One dollar was worth 28 rubles, so my purchase was the equivalent of $2.00. I knew that the same shirt would cost around $10 in the States.  My ratio proved roughly true for most items except electronics.  Video cameras were double the cost of the final sale price you could get on New York's 14th or 34th streets.

A consumer economy is much like the weather... we all have to adjust to it... in America, grin and bear it... in Russia, frown and shrug.  Things have changed phenomenally!  Here's a quick sketch of the hard-to-believe statistical changes in Russia since our arrival in June 2000... (I'm not taking the credit for these changes... there were other people involved!)

real incomes doubled... and then some!
average salary increased eightfold... from $80 to $640. 
consumer credit volume in the six years between 2000 and 2006 increased forty-five times!
the middle class grew between 2000-2006 from 8 to 55 million, an increase of seven times.
people below poverty line dropped from 30% in 2000 to 14% in 2008.
Wikipedia Encyclopedia, Economy of Russia

What destroyed the purchasing advantage of expatriates...

Inflation in Russia
and resulting Compound Inflation, 2000-2009

Post-Soviet Russia's inflation record is grim.  Inflation since 1991 has been much higher than in the West and within most other developing countries... a 13.6 % average 2000-2008!  A high compound inflation lessens the value of money and is a negative for many factors.  

With an 8.6% average inflation rate for the last 10 years, to buy the same amount of goods that you bought in 2000 for $1000 you now in 2009 need to pay $2,363!

The Rule of 70 is about rabbits in a cage...

Yearly average 7% inflation when compounded for 10 years cuts buying power of money in half.  

Inflation compounds year after year... not as one amount added to another, brick by brick... but geometrically like an expanding population of rabbits...
  2000   20.0 %
  2001   17.0 %
  2002   15.1 %
  2003   13.7 %
  2004   12.0 %
  2005   11.0 %
  2006   14.0 %
  2007   12.0 %
  2008   13.3 %
  2009   12.0 %         (8.1 by October 1, 10-12 % predicted for year)

All of us in St Petersburg have had to adjust to large changes...  

The oligarchs and other very rich people in Russia make it difficult to draw conclusions about the real effect of economic numbers.   These relatively few wealthy have amassed a huge amount of money which makes statistical averages not very useful when trying to see how the majority of Russians live their economic lives. 

Even among my own family and friends, pensioners have a more difficult time getting by now than they did in 2000.  More health care is platna (treatment for payment) and prescriptions are more expensive.

The good old times when the best bread in the world was 21 cents!

St Petersburg food prices have shot up... doubled or tripled in 10 years.  I remember walking to a sidewalk store (there no more) which sold bread delivered frequently by the bakery.  For just 6 rubles I could buy a scrumptious half circle of warm fragrant black bread !  At the 2000 exchange rate of 28 rubles to a dollar, this price was the equivalent of 21 cents.  The price for a half loaf (of squishy chemical tasting white bread) that same year in America was around $1.37...  6.5 times more expensive than in Russia!

The 2009 exchange rate is back close to the year 2000 number. Today it's 29.62. I haven't returned to America since 2004 so now I have trouble intuitively gauging a price ratio.

Now, food is no bargain in Russia...

If we returned to the States we would have large bills that most Russians don't worry about... heating, water, electric, insurance, school taxes.  But food in America is very inexpensive compared to most of the rest of the world. 

American consumers are different than Russian buyers...

Most Yankees never think to make a soup from scratch but rather open a Campbell's can.  In Russia you rarely see prepared tomato sauce for sale, but in New Jersey the supermarkets give one side of an aisle to this convenience item... with such brands as  Ragu, Progresso,  and Aunt Millie's.  Prepackaged sauce saves time but drives up the meal cost.

Family size, jumbo size, large economy size... are part of the American mentality.  In Russia most food and laundry products are sold in small packages...tea, jars of instant coffee and detergent. Quantity discounts are rare, not expected or asked for. 

There are no coupons clipped in St Petersburg. The many opportunities to finagle ways to save the food dollar that thrifty Americans use are not available here.  In the US there are food shopping forums where fellow shoppers alert others to good coupons deals, second-one-free offers, and the like. 

Chiseling prices and buying a few cigarettes... 
Petersburgers think differently about bargains than Americans.  Many would be  embarrassed to be seen trying to chissle prices, as the average citizen does not want to let on he is watching his kopeks. (maybe misguided pride?)

One market behavior that I like in St Petersburg is that people here can buy just one battery from a package of three, or a few cigarettes from a pack, while in America you must buy everything in the wrapping.

Shirts in 2000, tomato paste in 2009...

The Season Supermarket in our neighborhood has added more tomato paste brands than were available even a few years ago. I usually buy a salt-free brand offered by a Krasnodar company, but which often is a reshipment of tomato paste imported in bulk from China.

Today I bought a standard 400 gram can (14.1 ounces), brand name Bonduelle, repacked in Minsk, Belorussia.  It cost 76 rubles 90 kopeks which is equal to $2.60 US money.  In the US it's possible to get 12 (probably 6 ounce) cans for around $6.00... that's 72 ounces for $6.00... or 400 grams (14.1 ounces) for $1.38, a 50% savings in America today.  (How's my math?)

Americans reduce the cost of their food bounty yet further...

American laws and shopping habits drive down the cost of grocery items.  Some states have unit pricing.  In New Jersey the pricing law requires that stores place a label next to each product with the quantity, the sale price, and... most important...the cost for a standard unit... such as a pound, quart, or gallon.  You can see which tomato paste is truly cheaper.

Russia is different from America, and Russia 2009 is very different from Russia 2000...

So, living  in Year 2000 St Petersburg was a 5 for 1  buying opportunity... until the Law of 70 took over.  Rocketing inflation, and resulting high compound inflation, leveled the playing field by 2008, and now prices are only a good deal if you are selective.  Petersburg is still an intriguing place to live... but not a bargain anymore.

Siberia speaks...

As Konstantin Gluschenko, economist, states...

Thus in 2008, consumer prices in Russia, being nominated in US dollars, were 3.0-3.5% higher than in 1999-2000, and about twice as high as in 2003.  And so the cheapness of consumer goods in Russia came to an end.
Konstantin Gluschenko, Institute of Economics and Industrial Engineering, Siberian Branch of the Russian Academy of Sciences
December 2008 article... "Is the cost of living in Russia really that low?"

You can't time the market or predict the economic future, but I have a hunch that the buying power of the American dollar, which was close to amazing in the early 90's and still very strong in 2000, is now just a happy expatriate memory! 


What are your thoughts about comparative inflation in the West and Russia?  Is my reasoning right on?  How's my arithmetic?

Please click the Contact Me button at the top of this entry.  Happy to hear from you!

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  1. So what do you think is the answer to try and change some of the negative effects?

  2. Thank you Kinetico for your comment/question!

    I believe we have to understand and keep tabs on the rate of inflation, so we have time to adjust to the changes as they happen.

    Economics is intriguing because it requires us to make projections.

  3. Hi Rob,
    I'm an American living abroad and researching cities I'd like to live in.

    Do you have an update for this post about the cost of living in St. Petersburg?

    Thank you for sharing your knowledge and experiences. Your blog is very helpful!



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