The Central Bank explained the paradox of falling retail wage growth

The discrepancy between the return of wage growth and the continuing fall in retail turnover, which last month drew the attention of economists can be explained, on the one hand, the reorientation of Russians on food in restaurants and cafés, and on the other hand, persisting with a regime of economy, to be published on Monday, monthly review of the Central Bank “as evidenced by trends”.

Last month economists “VTB Capital” has declared that the close historical relationship between the dynamics of retail sales and real wages of the population no longer works, and the chief economist of Alfa Bank Natalia Orlova suggested that this may be due to increasing inequality in income distribution. Real (inflation-adjusted) wages of Russians are rising in annual terms, four of the last five months (the exception was in April, however, retail turnover has been falling for 18 consecutive months, the last months — consistently by 5-6% to the previous year, follows from the data of Rosstat.

According to the logic of previous years, the wage growth that began in February after months of decline, must sooner or later be broadcast in consumption growth, but until that happens. “The incipient recovery of wages until a minor effect on the dynamics of retail trade turnover” — write the analysts of the Bank of Russia. In the previous crisis of 2008-09 a period of divergence in the dynamics of wages and retail trade turnover was significantly shorter and its magnitude was much less, said the Central Bank. It turns out, this time, perhaps we can say “increase the lag with which consumption responds to income growth”.

The Bank of Russia connects the apparent paradox of falling retail and growing wages with several factors. This can partly be due to the reorientation of the population in catering services instead of buying food for the house. The turnover of restaurants, cafes and bars, though falling, but at a slower pace in the second quarter dropped by 2.5% from the same quarter last year after falling 4.9% in the first quarter and 5.5% over last year. In addition, the Russians continue to save: in June, the savings rate remained at a high level (13.1% of monetary income), which may also explain the apparent lack of improvement in the dynamics of the retail trade, says the Central Bank. According to surveys commissioned by the Bank of Russia, in June, 66 percent of respondents said they had saved in the last three months, any merchandise, products or services, and 50% of respondents increased the scale of the economy.

Finally, although wages are growing in real terms, pensions: in June, the real size of pensions decreased by 4.4% compared to the same month last year. It may be “somewhat” to explain the fall in turnover of food products, according to a review of the Bank of Russia. After the crisis of 2008-09 rapid recovery in oil prices led to a rapid return of consumer behaviors aided by the forward indexation of pensions and public sector wages. This time the government froze wages in the public sector and pensions were indexed only one-third of inflation last year.