Photographer: Andrey Rudakov/Bloomberg

How to Find Clues to Bank of Russia’s Next Step in Wage Data

  • Central bank monitoring wages after warning of inflation risk
  • Economy is stabilizing with rates remaining on hold since July

Russia’s central bank can add another piece to its data jigsaw as it prepares to review interest rates next month.

Nominal salaries, identified by policy makers last month as a possible risk for inflation, grew at a slower annual pace than consumer prices in April for the first time since January, the Federal Statistics Service in Moscow said on Monday. A drop in wages adjusted for inflation was worse than forecast by economists surveyed by Bloomberg.

Thinner wallets may shape the decision after the Bank of Russia last month extended its rate pause to six meetings and warned that a spike in salaries it struggled to explain posed a risk to price growth. With the central bank adamant about reaching its inflation target next year, policy makers are focusing on wages and tuning out much of the macroeconomic noise that includes a smaller-than-forecast drop in gross domestic product last quarter and a surprise gain in industrial output in April.

“Against the backdrop of stable, low inflation, the central bank will be deprived of one of the factors cited as an additional inflationary risk when it next meets on June 10,” said Dmitry Shagardin, an analyst at Bank Saint-Petersburg PJSC. “The regulator has fewer and fewer reasons to delay a cut in the key rate.”

Inflation Risk?

Higher nominal wages have so far done little to cheer up the consumer, with domestic demand withering after a currency crisis and the crash in oil prices. Retail sales shrank 4.8 percent from a year earlier in April after a 5.8 percent drop in the previous month, the statistics service said. Unemployment was at 5.9 percent, down from 6 percent.

Real wages fell 1.7 percent in April from a year earlier after growing in the previous two months for the first time since 2014. That was a bigger drop than forecast by 15 economists in a Bloomberg survey, whose median was for a decrease of 0.5 percent.

“Since the April data generally don’t confirm the theory of inflationary risks from nominal wages, the central bank can begin an easing cycle already at the nearest meeting,” said Ekaterina Vlasova, an economist at Citigroup Inc., who predicts a decrease of 50 basis points in June.

Wage Anomaly

The uncertainty over wages is among factors that prompted the International Monetary Fund to advise keeping the pace of future easing gradual. Nominal wages grew 5.4 percent in April after annual increases reached a revised 8.9 percent in March and 8.7 percent in February, exceeding the pace of inflation for the first time since October 2014.

The central bank has said that it needed the data for April to determine if the upswing was an aberration or a lasting trend that can lift consumer demand and accelerate inflation.

Price growth stalled in the past two months at 7.3 percent from a year earlier, almost double the 4 percent target. Last year’s base effect may even result in a higher rate in May-June before disinflation resumes, according to the central bank. Inflation expectations have remained elevated even as price growth plunged from a 13-year high of 16.9 percent in March 2015.

The Russian currency has stabilized this year as oil prices rebounded, gaining almost 10 percent against the dollar after a 20 percent loss in 2015. Derivatives traders are pricing in monetary loosening ahead. Forward-rate agreements are signaling 42 basis points in rate cuts during the next three months. The central bank has kept its benchmark at 11 percent since July.

While policy makers last month shifted to an easing bias for the first time this year, First Deputy Governor Dmitry Tulin said the Bank of Russia decided it won’t rush with easing and believes rate cuts will bring no “significant growth of the real economy.”

That’s testing the patience of business leaders like Andrey Kostin, chief executive officer of state-owned VTB Group, Russia’s second-largest lender, who called on the central bank to cut by 2 percentage points at once.

“It’s long past time to lower rates,” Kostin told reporters in Sochi on Friday. “And it has to be done more decisively, to give the market a clear signal.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE