The Vicious Cycle of Military Post-Keynesianism: Why rapid income growth has not stimulated domestic production

Income without spending

According to Rosstat, the exceptionally high rates of wage growth observed in Russia over the previous two years slowed sharply in 2025. In nominal terms, the average monthly wage increased by 13.5% year-on-year, and by 4.4% in real terms. In 2024 the increases were 19% and 9.7% respectively, while in 2023 they were 14.6% and 8.2%.

At the same time, Rosstat estimates that the median wage in 2025 amounted to 73,400 roubles, or 73% of the average wage, which exceeded the 100,000 rouble threshold (100,316 roubles). This gap illustrates the effect of the highest-paid categories on the average wage, pushing it upward, while half of workers earn no more than about 73,000 roubles. In recent years, however, the median wage typically amounted to only 62–63% of the average. Thus, in 2025 there was some convergence between high-income and middle-income wage groups.

This is also confirmed by Rosstat data on wage dynamics by industry sector: the slowest wage growth in 2025 was recorded in the extractive industries (+7% in nominal terms), the information and communications sector (+10%), and the financial and insurance sector (+4%). Yet in these sectors average wages are roughly twice the economy-wide average. In other words, wage growth slowed in the upper segment of the wage distribution. According to Rosstat’s household survey, around 35% of workers in 2025 earned above the national average wage of 100,000 roubles.

Among low-income groups, the average pension in 2025 increased by 2.8% in real terms, reaching 23,400 roubles. This is a marked improvement on 2024, when pensions fell by almost 1% in real terms. Russia has around 40 million pensioners, about 80% of whom do not work, meaning that pensions constitute their primary source of income. According to a February survey by inFOM (a regular study commissioned by the Central Bank), 35% of those surveyed have a monthly household income below 45,000 roubles, which corresponds to roughly 22,500 roubles per person.

The growth of real disposable incomes slowed less sharply than wage growth: in 2025 it increased by 7.4%, compared with 8.2% in 2024 and 6.1% in 2023. These income figures include, in addition to wages, earnings from business activity, deposit interest, and social benefits and pensions. It appears that the real increase in pensions in 2025, together with high interest on deposits and substantial social payments for those killed and wounded, ensured a more moderate slowdown in income compared to wages. Thus, despite the deceleration in wage growth, household income growth remained relatively high, at least according to Rosstat statistics.

Nevertheless, the continued growth in Russians' incomes has not translated into proportionate growth in consumption. Retail turnover, which increased by roughly 8% in each of the previous two years, rose by only 2.6% in 2025, which is a threefold slowdown. The most pronounced slowdown was in the non-food segment: after a 9.3% increase in 2024, growth in the first half of 2025 fell below 2%, with only a surge in demand in the fourth quarter, ahead of the planned VAT increase, pushing the annual figure to 3.1%. This slowdown is particularly striking given that the rouble strengthened over the year, which should have made imports more affordable.

Food sales also saw a sharp deceleration, from 5.9% to 2.2%. Overall consumer activity, which the Ministry of Economic Development measures to include retail, paid services, and catering, slowed by 2.5 times (from 7.1% to 2.9%). Growth in paid services also declined (from 4.3% to 2.7%), while catering continued to expand strongly, at 8.7% compared with 11.9% in 2024.

Growth rates of income and turnover of food and non-food products in real terms, 2022–2025, % compared to the corresponding quarter of the previous year

Two channels: anti-consumer credit

The main factor putting pressure on consumer activity was the extremely high Central Bank refinancing rate, which was raised to 21% at the end of 2024 and only began to decline in the second half of 2025. The key rate affected consumer behaviour through two channels simultaneously.

First, high interest rates on consumer loans caused the credit portfolio to shrink by 4.6% in 2025 (to 12.7 trillion roubles), after an 11% increase in 2024, according to Central Bank data. In the second half of 2024, the Central Bank deliberately sought to ‘cool’ overheated consumer demand, which was driving inflation, by tightening lending conditions. As a result, according to data from the National Bureau of Credit Histories (NBCH), the number of consumer loans issued during this period fell by almost three times (from 3.4 million in June to 1.2 million in December). In early 2025, the Central Bank slightly eased its requirements, but loan rates remained extremely high (above 40%, according to the Central Bank). It was only in the second half of the year that they fell slightly and the number of cash loans issued began to grow, reaching 1.54 million in December, according to NBCH data. Even so, this remained half the average monthly level of 2024.

The second channel constraining consumer activity was high deposit rates, which encouraged households to save. According to data from the Central Bank, interest rates on deposits for individuals peaked at over 21% per annum (for terms up to one year) in December 2024 and only fell to 15% by late summer 2025. This remained an attractive rate, around three times the inflation rate. Consequently, the share of household monetary income directed to consumption fell from 74.5% to 70%, while the share devoted to increased savings rose 1.5 times, from 9.7% to 14.1%, according to Rosstat. Household bank balances increased by 16.2% over the year, from 57.5 to 67 trillion roubles.

As a result, retailers of durable goods found themselves competing with banks: consumers were incentivised to defer expensive purchases and place their money in deposits earning roughly 2% per month, notes the president of DNS, one of Russia’s largest retail chains specialising in electronics. Meanwhile, the prohibitive interest rates on loans, which previously accounted for about a third of all electronics purchases, further depressed sales. Rising rates also put pressure on car loans, contributing to a 16% drop in new car sales in 2025. However, as analysts at the Central Bank point out, the market was also under pressure from sharply rising car prices (→ Re:Russia: Small and Toxic). The decline in sales continued into early 2026: according to Autostat, sales fell 3.9% year-on-year in January–February.

Retail chains faced a double challenge: sharply slowing demand and the expansion of marketplaces, according to Sberbank, account for roughly a third of all sales and continue to grow, drawing consumer activity away. Excluding marketplaces, real turnover in non-food retail has been falling in Russia since early 2024, and nominal turnover has been declining since 2025, notes Mikhail Matovnikov, head of Sberbank's Centre for Financial Analytics. For example, nominal non-food retail sales fell 7% year-on-year nationwide in the third quarter of 2025, and in some regions the decline reached 25%. This has impacted commercial property and employment: Sberbank data indicate that over two years, non-food retail chains cut around 5% of outlets and 10% of staff.

Real consumer spending indices, 2022–2026, December 2018 = 100, seasonally adjusted 

A vicious cycle and declining expectations

The noticeable slowdown in growth in the food segment of consumer demand is more difficult to explain. Apparently, the main factor here is the decline in expectations and the general deterioration in consumer sentiment, especially among middle- and low-income groups. According to research by Romir, although household monthly expenditures in nominal terms rose by 10.6% in 2025 (from 38,384 roubles to 42,455), the consumer confidence index declined. This fall in confidence has led to reduced activity in the fast-moving consumer goods (FMCG) segment. Saving has become the new norm in consumer behaviour. In its latest review of the regional economy, the Central Bank also notes a shift in demand for food products towards lower-priced products.

A contributing factor to declining consumer confidence may be the gap between slowing income growth and perceived inflation. According to inFOM monitoring, observed inflation estimates fell moderately during 2025 (from 16.5% at the start of the year to 14.5% at year-end), but since October they have remained flat for five months. Meanwhile, the expected inflation rate began rising again at the end of the year, from 12.6% in October to 13.7% in January. Less affluent groups, particularly those without savings, tend to believe that inflation has been rising again in recent months and expect faster price increases in the future. From their perspective, inflation is already outpacing income growth and is likely to continue doing so.

In any case, the inFOM consumer sentiment index has fallen steadily from a peak of 108 points in March–April 2025 to 100 points in early 2026. The decline is largely driven by the expectations sub-index. Survey data show that in 2025–early 2026, expectations regarding the national economic situation fell more sharply, from 125–127 points to 107, while expectations regarding personal financial circumstances dropped by 10 points. In contrast, the index for major purchases fell much less, as large purchases are primarily made by higher-income groups. The decline in confidence seems to have affected middle- and low-income groups more acutely.

Consumer sentiment index, 2024–2026

At the beginning of 2026, demand continued to slow down following a temporary surge in the last months of 2025. On 13 February, the Central Bank confirmed its medium-term forecast, according to which household spending on final consumption in 2026 is expected to fall by at least half, from 3.4% to 0.5–1.5%.

In January, the regulator recorded a ‘fairly significant’ 0.9% rise in consumer lending, following a 0.7% decline in December. Central Bank analysts, however, attribute this to holiday-season spending: customers drew on credit card limits and did not repay loans early. If this interpretation is correct, further deceleration in consumption can be expected in February as these new debts are repaid.

Estimates of current demand among retail businesses, according to the Central Bank's January monitoring, fell to their lowest level since 2022 (-12.99 points), the first year of the full-scale war with Ukraine and the introduction of Western sanctions. Within this, the retail sector’s demand estimate (–10.29) hit its lowest point since February 2023. At the end of 2025, food retailers’ expectations for demand over the following three months dropped into negative territory (–0.95) for the first time since March 2022. In January 2026, expectations rose slightly (to 3.57), but remained four times lower than the 2023–2024 monthly average and nearly three times below 2025 levels.

Thus, the rapid growth of household incomes in Russia in 2025 did not translate into a corresponding increase in consumption or, consequently, into expanded production in consumer-oriented industries. With the Central Bank using high interest rates to restrict credit, the banking sector absorbs the additional funds created by the wage boom and channels them to enterprises capable of covering their high cost of capital. A significant share of these enterprises is likely linked to budgetary financing, onto which the burden of expensive borrowed funds is effectively shifted.

In other words, the structural imbalances of Russia’s military economy, associated with inflated budget spending, have blocked the mechanism through which rising domestic demand could stimulate the consumer sector. In turn, stagnation or depression in consumer industries, amid continuing growth in household incomes, generates additional inflationary risks and prevents the Central Bank from lowering rates at a sufficient pace. This creates a self-reinforcing cycle of military post-Keynesianism. At present, however, the wage boom and income growth are losing momentum, and domestic demand can no longer be relied upon as a driver of economic growth in 2026.