Consumers aren’t blowing bigger wages to Bank of Russia’s relief

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

While real wages grew at the same pace of 3.7% 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,” policymakers 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% this year and 2.2% 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% from a year earlier, the biggest jump since 2012.

“Retail sales are shifting to growth, supported by the meek expansion in real wages and deferred demand,” said Vladimir Miklashevsky, senior strategist at Danske Bank A/S in Helsinki.

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% from a year earlier last month after a revised gain of 0.1% 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.

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.

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

At 8%-10%, the consumer still remains in “saving mode,” and even a ratio of as low as 6% is “normal” when the economy is recovering, according to Igor Dmitriev, head of the Bank of Russia’s monetary policy department.

“Domestic demand continues to exert a disinflationary impact,” policymakers said in a statement last Friday following a cut in the key rate.

“Currently, the moderate growth in consumer spending does not exert any inflationary pressure.” — Bloomberg