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Are Russian Incomes Really Rising?

Maksim Topilin

Maksim Topilin

Russian Labor and Social Welfare Minister

“In January-February real household incomes rose by 1 percent. Overall, incomes are rising."

...despite one-month rise, incomes continue to drop.

Technically, the minister is right. Real incomes for the period of January-February 2017 grew by 1 percent compared to the same period in 2016, according to data from the state statistics service, Rosstat. That was the first such increase since November 2014 (See graph). However, Topilin fails to mention the reason for this income bump, and it's simple.

In January, Russian pensioners (numbering some 43.5 million) got an extra 5 thousand rubles on top of their normal monthly retirement payment. The government explained the one-time payout was compensation for the insufficient indexation in 2016 of pensions. Pensions were only raised once, in January, and only by 4 percent. This while consumer inflation in 2015 was registered at 12.9 percent.

And if you factor in that the average pension payment in January 2017 without this bonus would have amounted to 12,426 rubles ($209), then the injection of those extra 5 thousand rubles (or some 40 percent of that pension total) was bound to impact real income data, already heavily weighted by pension income. Overall, pensions rose by 37 percent in January in comparison to the same period in 2016, and real household income increased by 8.1 percent. But even Rosstat noted that January’s real income rise was mainly due to this one-time pension payout.

By February, with the extra pension money now history, Russian real incomes continued again on their two-year downward trajectory. Pensions dropped by 0.6 percent, while real household incomes, already in decline for 26 straight months, decreased again – this time by 4.1 percent. However, lump together January and February and the 8-percent household income growth “covers up” the 4-percent drop in February, resulting in the 1 percent growth mentioned by the labor minister. But by March, real household incomes were down again by 2.5 percent.

Russian real household incomes in 2016 reached only 90.5 percent of levels in “pre-crisis” 2013; real wages – 92.7 percent; real pensions – 93.8 percent, noted the Moscow-based Institute for Social Analysis and Forecasting.

Of course not all Russians are suffering. In fact, the ranks of the country’s well-heeled continue to rise. The number of U.S. dollar millionaires in Russia rose by 10 percent in 2016 to 132,000 – the same number as in South Korea. By comparison, the number of dollar millionaires in 2016 rose by only 3 percent worldwide, in North America by 6 percent, while Europe witnessed a drop of 4 percent. Increases in the real income of Russia’s wealthiest heavily influence national statistics, explained political scientist Dmitry Oreshkin.

In 2016, only one in ten Russians made more than $1,000 a month, according to data from Rosstat. Moreover, the monthly earnings of 40 percent of Russia’s working population ranged between $337-$800; 26 percent earned less than $330 a month.

The federal government itself does not anticipate any significant uptick in income growth. On April 13 the government approved the macroeconomic forecast for 2017-2020 that was prepared by the Ministry of Economic Development. According to the head of that ministry, Maksim Oreshkin, real household incomes are predicted to grow by only 1 percent in 2017. The ministry forecasts a bit stronger growth in 2018 – 1.5 percent – before slowing again in 2019 – 1.2 percent and 2020 – 1.1 percent.

Giving those figures, it’s hard to imagine real household incomes recovering to pre-crisis levels in a few years. Especially given the bleak prospects for economic growth in Russia. The Ministry of Economic Development is forecasting 2 percent GDP growth in 2017, but only 1.5 percent in the three years after that.

Nonetheless, Topilin expects real household incomes to recover to pre-crisis levels within three years by the end of 2019. What analysis if any the minister bases his bold prediction is a mystery. Perhaps he’s betting the number of millions in Russia will double?