Rosstat’s data release for the first month of 2017 turned in a pleasant surprise for Russia, with retail sales turnover falling by the least since the start of 2015. Retail sales turnover printed a 2.3% year-on-year decline that follows -5.9% in December 2016 and the catastrophic 15.5% decline in December 2015.
Wage growth was revised up in December in both nominal (+8.3% y/y) and real (+2.8% y/y) terms, with the flash estimate for the real wage in January slightly higher at 3.1% y/y, according to Alexander Isakov, chief economist at VTB Capital.
“From the monetary policy perspective, the recovery in retail sales did not bring any significant inflationary pressure, as the headline CPI is still on a steady downward path, declining from 5.4% y/y in December to 4.6% by 20 February,” Isakov added.
Bankers are watching the wage and inflation numbers like hawks in the hope that the Central Bank of Russia (CBR) will give the economy some growth-boosting rate cuts this year. The income and retail results are neutral for a rate cut as while rising wages did not push inflation up, the CBR is still fixated on bringing inflation down to its target of 4% as soon as possible. No rate cuts are expected until at least the second half of this year.
Wage inflation in both the private and public sectors was higher than in November, printing 9.3% y/y and 7.3% y/y (vs. 9.1% and 6.3%, respectively), which is well ahead of inflation which was 5% in January.
“More active growth in the public sector came on the back of public administration and defence, where the growth in wages accelerated from 7.3% y/y to 11.6% y/y. The flash estimate of nominal wage growth in January is 8.3% y/y, supporting the higher wage growth trend that started in 2016,” Isakov said.
There have been a lot of revisions to Russia’s data after it recently adopted a new methodology that is closer to international norms, and in particular count more defence spending items into the statistics.
The recovery in retail was largely due to both food and non-food categories, with the latter contributing the most, printing -1.3% y/y (vs. -5.3% in the previous period), reports VTBC.
The decline in retail lending in the seasonally weak first month of the year was more moderate than previous years: -0.4% m/m vs. -0.6% in 2016 and -0.7% in 2015.
And the population seems to be cheering up a bit and has started thinking again about buying larger items. In January, the consumer perception index of the timeliness for making big ticket purchases improved from -21pp to -18pp.
But maybe the biggest fillip was a one-off government hand-out of RUB5,000 (€81) to pensioners in lieu of adjusting the pension index to above the rate of inflation.
“That made real disposable income increase up to 8.1% y/y, while in 2016 it oscillated persistently in the red zone (-6.4% y/y in December),” says Isakov. “The persistence of the growth rate in disposable income in the short term is unlikely because the payment was a one off, which might also mean retail sales growth not continuing to improve at the current pace in the coming months in y/y terms.”