The Data Flip That’s Bringing Intrigue to Russia’s Rate Pathby
Revisions in wage data raise questions about inflation outlook
Central bank reviews rates Friday after first cut in 11 months
Russia’s central bank may want to have its last interest-rate decision back.
Policy makers spent two months pondering the wage data they called “mixed” before pulling the trigger on their first rate cut in almost a year in June. While readings of a pickup in nominal salaries initially showed that it settled below inflation, the second major revision since April is again throwing off the dials on Governor Elvira Nabiullina’s dashboard. Real wage growth suddenly turning positive last quarter is an argument against deeper easing at a meeting on Friday, according to Citigroup Inc.
The pitfall of a data-driven approach to policy, championed by the central bank since Nabiullina took over in 2013, is that it often relies on volatile figures prone to revision. Statistical slip-ups may not come as a surprise in a country where the reliability of data on gross domestic product is rated below the rest of Europe and just alongside Gabon and Panama, according to London-based research firm World Economics, which ranked 154 nations in its Data Quality Index published at the end of last year.
“Compared to before, the central bank now has a more formal procedure for decision making on the basis of models,” said Oleg Kouzmin, an economist at Renaissance Capital in Moscow, pointing to calculations included in monetary policy reports. “The disadvantage of this approach is in a significant dependence on incoming variables.”
While lauded by Morgan Stanley as the “most orthodox” central banker in developing Europe, Nabiullina’s critics often struggle for words to explain her decisions.
The economy minister has said the bank’s fixation on its targets reminded him of fetishism and idol worship. With policy makers taking their time to cut rates amid a recession and the financial industry under pressure, the head of the country’s second biggest lender said he prays for a decrease in borrowing costs before every meeting.
Derivatives traders’ wagers for a rate cut in the next three months have declined from near a six-week high, with forward-rate agreements on Wednesday signaling 54 basis points of reductions. Twenty-nine of 38 economists surveyed by Bloomberg predict the central bank will leave its key rate at 10.5 percent at Friday’s meeting.
Policy makers first drew attention to changes in nominal wages in April, listing them as one of the key risks for price growth next to budget uncertainty and a slow decline in inflation expectations. While the annual pace of salary gains exceeded inflation in February and March for the first time since October 2014, it slipped closer to 6 percent in the following two months. Or so it appeared.
The increase was revised to 8.4 percent from 6.2 percent for May, when annual inflation climbed to 7.5 percent, according to the Federal Statistics Service, or Rosstat. That took real wages from a 1 percent decline to a jump by the same amount. Economists forecasting a further decrease in salaries adjusted for inflation were surprised by an even bigger surge in June, to 1.4 percent.
The method used by the service relies on an “expert assessment” based on nationwide data for preceding months and changes recorded for a given month in previous years, with no breakdown by industry, according to Olga Zhikhareva, deputy director of Rosstat’s labor statistics department. When the actual hard data become available, earlier estimates are revised, she said by phone on Wednesday. Finalized statistics are only published 35 working days after the reporting month, Zhikhareva said.
“The central bank knows that data can be revised and is guided by common sense above all,” Kouzmin said.