The rate of household savings (the ratio of personal savings to income) in August-September decreased to values significantly below the levels of 2013–2014, the Central Bank of Russia (CBR) said on October 30. In the first half of 2018, Russians used 5.9% of their income for savings, which is the lowest level in the last 15 years.

The central bank says the change is indicative of a change in spending behaviour, where the population is gradually began to move from a savings mentality to a consumption mentality. There has been an increase in sales of non-food products, which the central bank explains as a reflection of continuing high inflation expectations. Consumer price inflation (CPI) is currently close to record lows of about 3% but the population expects inflation to rise towards 9-10%, according to CBR consumer surveys.

Consumer demand has also been supported by the growth of consumer loans and rising wages. In September, real wages increased by 7.2% in annual terms. However, at the same time real disposable incomes stopped growing in August, and decreased by 0.9% in annual terms, while in September the fall accelerated to 1.5%. Income growth is basically flat or slightly negative and that is hindering the expansion of demand, argues the CBR.

While the fall in savings trend looks unsettling the population’s financial position is still sound as the retail deposit to loans ratio has remained at circa 200% all year and this year increased over the circa 170% it was at in 2017. That means retail clients can cover each ruble of debt with two rubles of cash on deposits in aggregate. While consumer loans have been growing fast in the last year, so have deposits, even if the savings rate is now running at a reduced rate.

In general both the population and the corporate sector remain very underleveraged and so a pick-up in a free spending mentality should be welcomed.