Retail sales were up and incomes continue to recover as Russia’s consumers return as a modest force for economic recovery. Two trends were clearly visible in this month's numbers: nominal wage gains are slowing as companies get used to the lower inflation environment; and consumers are increasingly funding their shopping with credit.
Growth in Russia’s retail sales accelerated from 1.9% y/y in August to 3.1% y/y in September, which was above the market consensus of 2.1% y/y and the expectations of Gazprombank of 2.2% y/y.
The unemployment rate grew from 4.9% to 5.0%, while growth in real wages was 2.6% y/y, which is well below the consensus forecast of 3.7% y/y and Gazprombank’s expectation of 3.5% y/y.
The growth in construction volumes was 0.1% y/y; moreover, the State Statistics Service significantly raised the base for 2016 (improving the estimate for the fall in construction volumes from -4.3% to -2.2%) and, accordingly, weakened the 8M17 estimate. As a result, a 2.0% y/y fall was recorded for 9M17 in the volume of construction, including a 6.4% decline in the residential sector.
The previously published data for industrial production imply a reduction in growth from 1.9% y/y for 8М17 to 0.9% y/y in September.
“In the statistics for September, the slowdown of nominal wage growth stands out, with the growth rate falling from 7.3% y/y in the first half of 2017 to 5.6-5.8% in August-September amid lower inflation. It cannot be excluded that companies are gradually adapting to the lower inflationary environment, and this may limit future wage growth,” Gazprombank said in a note.
“At the same time, the continuing acceleration in consumption growth -- for the first time since September 2015, growth in retail sales was higher than growth in real wages — seems to be relying more on leveraging. The greater role of credit in financing consumption might become a factor in the growth of medium-term inflationary risks and, accordingly, an additional argument against an easing of monetary policy in 2018,” the bank’s analysts added. "On the corporate side, the sluggish trend in construction and industrial production combined with an outflow of capital from the private sector underscore the unsteady nature of investment activity outside select large projects with state involvement."