Undercooling: Wage and consumption growth has slowed, but not enough for the Central Bank to lower rates without risking inflation
Wage dynamics and domestic consumption will be among the key topics discussed at tomorrow’s meeting of the Central Bank’s Board of Directors regarding the refinancing rate. Following a wage boom in 2024, wage growth has slowed sharply in early 2025. In real terms, wages rose by 3.4% in the first quarter compared to the same period in 2024, whereas a year earlier the increase was 11%. Signs of economic cooling began to appear towards the end of 2024, and the slowdown in nominal wage growth was one of them. At the same time, inflation accelerated sharply, which contributed to this effect.
Although the labour shortage in the Russian economy is no longer as acute as it was a year ago, it remains a significant pressure factor on the labour market. As a result, wage cooling is likely to lag behind the overall economic slowdown throughout 2025. This will, in turn, hinder the easing of inflation.
Consumption is also slowing, but not very rapidly. The main factor behind this deceleration is the lack of access to credit: high interest rates make borrowing too expensive. At the same time, the consumer sentiment index is declining only gradually. Following last year’s record income growth, households still hold substantial funds both in cash and in savings accounts. Essentially, the only segment where Russians have felt a marked deterioration in conditions is the most expensive goods, that is housing and cars, where credit plays a key role in purchases.
A Central Bank rate cut would make loans more affordable while simultaneously reducing the appeal of deposits, i.e. increasing consumer demand through both channels and potentially accelerating inflation. However, if the rate remains at its current level, the slowdown in consumer demand will continue and, together with high interest rates, will further strain the civilian sectors of the economy. The government and the Central Bank must now navigate between Scylla and Charybdis: the scale of overheating in the Russian economy in 2023–2024 has reached such levels that its consequences cannot be quickly overcome, and any decision will come at a high cost.
The end of the wage hype
At the beginning of 2025, wage growth in Russia slowed noticeably. In January, according to the Unified Interdepartmental Information and Statistical System (EMISS), nominal annual growth rates matched those of the previous year (18.5%). But from February to April, the trend became more mixed. In early 2024, wage growth had accelerated, ranging between 20–23% annually. By February–April 2025, this had fallen to 11–14%. In real terms, the decline was even more pronounced. According to Rosstat estimates, real wages in March rose by just 0.1%, and for the first quarter as a whole, the increase was 3.4%. In March 2024, real wages had grown by 12.9% year-on-year, and for the first quarter last year Rosstat reported growth of 11%.
However, it is important to account for a certain level of 'noise' in the wage data for early 2025. Companies typically issue year-end bonuses and incentives in December (main payments) and March. These spikes are visible in the graph presented below. This year, some employers moved their March payments to December 2024 in anticipation of a personal income tax (PIT) increase from January 2025 (though this primarily affects higher salaries – over 2.4 million roubles per year). This complicates the assessment of monthly wage dynamics with seasonal adjustments. As a result, analysts’ interpretations vary quite significantly.
Nominal and real wage growth, 2022–2025, January 2022 = 100
Thus, according to calculations by the Telegram channel ‘Hard Figures’, in March 2025 real wages, adjusted for seasonality, rose by 0.7% compared to February, meaning they 'remained close to an overheated trend' (on an annualised basis, this corresponds to real growth of around 10%). Meanwhile, estimates from the Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) show that, excluding seasonal factors, real wages fell by 2.5% in January 2025 compared to December, declined by 1.5% in February relative to January, and rose by just 0.2% in March compared to February. Analysts at the Centre see risks not merely of stagnation, but of an actual decline in real wages. In their view, many companies no longer have the capacity to continue increasing their wage funds at the previously high pace.
Racing against inflation
The logic and factors behind wage dynamics in Russia over the past four years are clearly visible in the more ‘down-to-earth’ median wage index calculated by Re:Russia based on data from the Sberindex service.
Median wage and inflation dynamics, 2022–2025
As can be seen from the graph, in 2021, the median nominal wage in Russia grew, slightly outpacing inflation. In the spring of 2022, immediately after the war began, the spike in inflation and the temporary decline in nominal wages led to a sharp reduction in real wages. From mid-2022 until the end of 2023, the pace of nominal wage growth stabilised at around 15% per year, while inflation rapidly decreased, leading to the recovery and growth of real wages.
In 2024, inflation grew slowly, while nominal wage growth accelerated sharply to 19–20% on an annual basis, and to 23% in the manufacturing sector. The ramp-up of the defence sector and the emigration of workers to the front lines and abroad led to a severe labour shortage, which, in turn, caused disproportionate wage growth across the economy (→ Re:Russia: Wage Anomaly). As a result, real wage growth remained high, despite the acceleration of inflation. However, from autumn 2025 onwards, nominal wage growth (on an annual basis) began to slow, while inflation continued to rise, leading to a slowdown in the growth of real wages.
The divergence in assessments of current wage dynamics by the CMASF and some other analysts signals the political sensitivity of this issue. The response to it largely influences the argument for either lowering or maintaining the key interest rate. If analysts from the government-affiliated CMASF are correct and wages are stagnating or declining, the rate can be lowered without causing inflationary growth. However, if the estimates of Hard Figures and MMI are more accurate, a rate cut would halt the decline in inflation, and it would be wise to hold off on such a decision.
The deficit factor
The Russian economy has sharply slowed down, and the situation for businesses is worsening, which is agreed upon by virtually everyone. But how will this impact wages? The Russian labour market remains in deficit, meaning that even with reduced performance metrics, companies will still be forced to maintain wages in order not to lose employees.
An analysis of job vacancies on the labour market, conducted by the Financial Times, suggests that the wage race is slowing down. The growth rate of expected salaries in new job postings has decreased. According to the hh.ru service, the ratio of active resumes to active vacancies is becoming healthier. The number of vacancies has decreased (in April, they were 21% fewer than a year ago), while the number of resumes has increased (+34%). As a result, the hh.ru index has indicated, since November, no longer a 'shortage of job seekers,' but rather a 'moderate level of competition for jobs.' However, analysts from the SuperJob service believe this could be explained by workers becoming significantly more mobile. In January 2022, 73% of job seekers on SuperJob were unemployed, while today that figure is only 37%. According to the Institute for Statistical Research and Economic Knowledge at the Higher School of Economics (HSE), at the end of 2024, the labour shortage remained extremely acute – large and medium-sized companies, excluding small businesses, were short by 2.6 million workers.
Although the labour market frenzy has subsided, tension persists, and our estimates suggest that this tension will 'fuel' wage dynamics even amid worsening economic and business indicators. As a result, the labour market will cool more slowly than the economy. This means inflationary risks will remain relatively high. In 2024, real wages, according to Rosstat, grew by 9.1%, and in 2023, by 8.2%. The median forecast from analysts surveyed by the Central Bank suggests that real wages will increase by 3.2% by the end of the year, with average annual inflation at 9.2%. Judging by data from March, this figure could even be slightly lower.
Money, but no credit
Consumption, like real wages, is growing much more slowly this year than it did previously. According to INFOLine, in March, retail turnover growth on an annual basis was 1.9%, compared to 2.2% in February. In March 2024, growth was 10.8%. In the food sector, growth in March was 3.3% year-on-year, while in the non-food sector, it was only 0.5% year-on-year. Data from the Sberindex service also points to a slowdown in consumption. In April 2025, total consumer spending amounted to 6.82 trillion roubles, compared to 6.02 trillion in April 2024. Given that inflation during this period was 10.23%, the real growth is less than 3%. The estimates from CMASF analysts are once again somewhat panicked: consumer spending is not just growing slowly but is rather on the brink of stagnation and recession. Their arguments favour lowering the interest rate. Based on the average monthly figure from 2018, they calculated that in Q4 2024, the monthly dynamics were nearly flat, and by early 2025, they were declining.
Real wage growth has sharply slowed, but has not yet ceased, while the volume of deposits held by the population increased significantly in 2024. Although the favourable exchange rate has helped curb the price increase for durable goods (and is one of the key factors in disinflation → Re:Russia: Military Hangover), and the population has money, the slowdown in consumption can be explained by the fact that, due to high key interest rates, one of the main demand stimuli – consumer lending – has almost ceased to function.
The average interest rate on loans to individuals for up to one year in May was 28.01%, for loans over one year, it was 20.33%, and for car loans over one year, it was 21.41%. According to data from the Central Bank, in May, consumer lending decreased by 0.7% compared to March. The process of reducing the consumer loan portfolio has been ongoing since October, during which time it has shrunk by 11.5%. Accumulated inflation over the same period was 6.77%. This means the purchasing power of the consumer credit portfolio has decreased by 17%.
Between Scylla and Charybdis
According to a recent survey by the Levada Centre, the proportion of those who believe that now is not the time to make purchases on credit or loans has reached 83%. This is nearly the highest value recorded since the start of the survey in the spring of 1997. The majority of Russians believe that it is an unfavourable time for major purchases such as cars or real estate. Only 20% of respondents consider April 2025 to be a good time to buy a car or an apartment. The proportion of those who think that now is a bad time to buy property has also returned to its peak levels. The only worse assessments were in 1999, 2008, and immediately after the war began in 2022.
At the same time, according to a recent poll by infOM, the consumer sentiment index in May 2025 was 107 points, down from 109 in the previous two months. In May 2024, it was 112 points. However, expectations have fallen more significantly (by 8 points over the year) than assessments of the current state (by 3 points). These figures suggest that, overall, consumption is slowly cooling, with the exception of the most expensive goods segment (housing, cars), where the availability of credit plays a key role.
A reduction in the key interest rate will lead to greater credit availability and a reduction in deposit rates, which, on average, stood at around 19.5% annually at the start of 2025. As a result, the tendency to consume durable goods will increase. This will act as an inflationary stimulus. Meanwhile, maintaining the rate will result in further contraction of consumption, which will worsen the situation in civilian industrial sectors, many of which are already in negative territory. Therefore, the wage indicators and consumption dynamics suggest that keeping the rate unchanged would be more beneficial for continuing disinflation, although the cost of the necessary economic and producer rebalancing will rise. However, this situation is a consequence not of the Central Bank's persistence, but of the depth of the imbalances accumulated over two years of 'wartime' growth.