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Real wages in Ukraine jumped 10.6% year on year in October, feeding a sharp pick up in consumption, but in dollar terms the weakening currency means wages have been stagnating and stuck at circa $430 for almost a year now.
The average monthly nominal wage amounted to UAH12,174 ($430) a month, increasing from UAH11,998 in September, or 0.5% month on month in real terms.
The 10.6% increase in real wages in October was an acceleration from the 9.7% y/y growth in September, the State Statistics Service reported on November 27.
Real wages have benefited from the post Soviet record-low inflation levels in the last year; inflation posted 2.6% y/y in October and is likely to remain low in November too after the NBU has managed to crush inflation in the last year.
The increase in real wages has felt like more money in the pocket for Ukrainians and in turn fuelled an increase in consumption that gave the economy a lift in the third quarter.
Ukrainian retail sales accelerated to 7.6% y/y growth in real terms in 10M20 from 6.7% y/y growth in 9M20, Ukraine’s State Statistics Service reported on October 20. In October, retail sales advanced 15.2% y/y (vs. 11.6% y/y growth in September), or 4.3% m/m.
This growth has been going on for several months and by the end of the third quarter of 2020 Ukraine's GDP had declined by 3.6%, but the figure for the January-September period amounted to 5.5%, the Ministry for Development of Economy, Trade and Agriculture announced on November 5.
However, the falling inflation combined with the rising nominal wages that lead to increased real wages in hryvnia terms has been offset by the falling value of the currency against the dollar.
Between the end of June and the end of November the hryvnia has fallen from UAH26.7 to the dollar to UAH28.5, a drop of 6.7%, which has offset most of the gain in real wages over that time. And the slow weakening of the currency over the last three years has meant wage growth in dollar terms before last summer was a lot slower than in hryvnia terms.
In dollar terms the value of monthly wages at the end of June of $434 per month has not changed significantly from the value at the end of November of $430.
Still, this is a slight improvement from the $415 Ukrainians earned in June a year earlier but as the chart shows that despite some swings in between, wages have been essentially stagnant in dollar terms since the middle of 2019.
And analysts are expecting the hryvnia to continue to weaken in 2021, falling to somewhere around UAH30 to the dollar, which will continue to undermine the growth in real wages in dollar terms.
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