Russians Aren't Blowing Bigger Wages in Boon to Central Bank

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Photographer: Andrey Rudakov/Bloomberg

There’s less than meets the eye to Russia’s consumer recovery.

While real wages grew at the same pace of 3.7 percent in April and May, the most in over three years, retail sales only crawled just above zero after a record 27 months of contraction. The Bank of Russia expects consumers to stay similarly cautious for another two to three years.

This explains why the central bank believes risks to inflation have declined in the short term. Even as Governor Elvira Nabiullina said a rebound in consumption is becoming “more pronounced,” policy makers last week delivered this year’s third straight decrease in interest rates.

“It’s too early to worry about risks for inflation that will emerge from consumption,” said Charles Robertson, London-based global chief economist at Renaissance Capital, who sees retail sales growing 1.5 percent this year and 2.2 percent in 2018.

Russians are spending more on durable goods, making the purchases they had put off in previous years. Last month, car sales rose 15 percent from a year earlier, the biggest jump since 2012.

Under the central bank’s baseline scenario, final consumption by households won’t grow faster than real wages until 2019-2020, when deposit rates will decline and the economy moves to stable growth.

Retail sales increased 0.7 percent from a year earlier last month after a revised gain of 0.1 percent in April, the Federal Statistics Service said on Tuesday. Meanwhile, real wages grew for a 10th straight month, faring better than every forecast in a Bloomberg survey of economists.

Growth in gross domestic product accelerated in May to 3.1 percent from a year earlier after an increase of 1.7 percent the previous month, according to the Economy Ministry. From manufacturing and mining to retail trade and construction, all main segments of the economy contributed to the expansion, it said on Wednesday.

Saving Mode

Households are in no rush to loosen their purse strings after a currency crisis and almost two years of economic contraction gutted their finances. Asked how they’d manage an addition to family wealth equal to two months of income, almost half of Russians say their choice would be to save the money instead of spending it, according to a poll conducted for the central bank.

“Real wages continuing to rise faster than retail sales indicates that savings rates, which are already high, are continuing to rise,” Goldman Sachs Group Inc. analysts Clemens Grafe and Murat Unur said in a note. “At this stage,” the economy’s “stronger expansion is neither translating into cost pressures yet nor has it led to a fall in savings rates, and hence should not be an inflationary concern.”

While the share of incomes held as savings dropped to 7.7 percent in the first four months, from 11.3 percent last year and 14.1 percent in 2015, it remains far above the 4-5 percent level the central bank considers “alarming” for inflation. Russia hasn’t been near that threshold since 2008. 

Price Sensitivity

The average purchase in shops fell the most this year in May, decreasing by 2.3 percent to 512 rubles ($8.55) from the previous month, according to research company Romir. But while the average bill declined in supermarkets, it rose by 2.9 percent for transactions in discount stores and smaller outlets, showing that Russians shopped around in search of better prices.

Sberbank CIB’s latest survey of “the Ivanovs,” using a common last name to describe the typical buyer, found that 73 percent of respondents described themselves as price-sensitive in the first quarter, with the share of customers visiting a store just to buy items using promotional offers increasing slightly to 45 percent.

“Domestic demand continues to exert a disinflationary impact,” the central bank said in a statement on Friday following a cut in the key rate. “Currently, the moderate growth in consumer spending does not exert any inflationary pressure.”

— With assistance by Zoya Shilova, and Anna Andrianova

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