What’s driving the surge in real income?
Real income suddenly surged by 3.3% y/y in Q3. We haven’t seen such high income growth rates in six years. High real income growth has only been seen in periods of robust economic growth, or during periods of public sector pension and social benefits indexation. Neither occurred in Q3 2019. So the release of the data raised a new wave of questions and publications discussing the reliability of current economic statistics in Russia.
A major reason for the powerful increase in household income in Q3 was higher income from official wages, and an abrupt surge in the “other incomes” category (+3.5% y/y in real terms). Growth of income from official wages (+5% y/y) was higher than the average wage growth (+3% y/y). Generally “other incomes” means wages in the informal sector not captured by official data and estimated by expenditures. We find this dynamic of recent income growth rather surprising, and not validated by other available sources.
There’s been hot debate in 2019 among policymakers that the high growth of retail credit in Russia may be a source of future economic instability. Minister of Economic Development Maxim Oreshkin criticized the CBR for not taking any measures to slow consumer lending growth. The CBR disagrees, as it sees no bubble in retail lending. CBR Governor Elvira Nabiullina called an opinion that consumer lending is to blame for all the troubles of the economy and the low income of the population a “great exaggeration.”
According to the CBR, the current debt service ratio of the average Russian household is 10.6% of disposable income – a record high. The CBR has started to implement regulations aimed at “cooling” the retail credit market, and plans to introduce the same mechanism for mortgages.
In any case, it seems that the growth of household income, at least by the official definition, is becoming more important for the authorities. A simple way for the government to influence real income is to raise the minimum wage, and to increase social benefits. The government plans to increase these above the inflation rate in 2020. But the true impact on household income will be lower than assumed in the official forecasts.
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