Finance

Why Russians Cut Spending Despite 7% Income Growth 2025

Explore why Russians are saving on food, travel, and cafes despite 7% real income growth. Analyze Central Bank key rate policy, stagflation risks, and measures like aquaculture expansion to boost consumption and affordability.

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Why are so many Russians cutting spending—nearly 70% saving on food, one-third reducing entertainment and travel, over half avoiding cafes, and a 5% decline in physical food sales (milk, rice, buckwheat, pork down 8–10% in Sept–Oct)—despite reported 7% growth in real disposable incomes and a drop in poverty in Q2 2025? To what extent is this driven by the Central Bank’s tight monetary policy (aimed at returning inflation to 4% with a projected average key rate of 13–15% in 2026), and does that policy increase the risk of stagflation? What monetary, fiscal, and supply-side measures (for example, expanding aquaculture) could prevent stagflation while restoring consumption, protecting food affordability, and preserving nutritional quality?

ключевая ставка, инфляция россия and экономика россии explain much of the puzzle: aggregate real доходы населения rose about 7% in Q2 2025, but high interest rates, elevated inflation expectations and distributional and composition effects have pushed households to cut потребительские расходы. The Central Bank’s tight policy (a high ключевая ставка path into 2026) raises borrowing costs and strengthens saving incentives; combined with rising staple prices and precautionary saving this creates a meaningful risk of stagфляция unless monetary action is carefully sequenced and paired with targeted fiscal relief and supply‑side measures (for example, expanding аквакультура россия and logistics). Short answer: monetary policy is a major driver, but expectations, unequal income gains, and supply constraints matter too — fix one and the others must follow.

Contents

How the Central Bank’s ключевая ставка (key rate) shapes consumption and saving

Put simply: the policy rate changes prices across the economy. When the central bank keeps a high ключевая ставка, banks charge more for mortgages, car loans and consumer credit, and firms face more expensive capital — that reduces spending and hiring. At the same time deposit rates tend to rise (or at least the prospect of higher safe returns encourages saving), so people prefer to store wealth rather than spend it.

Why does that matter now? Households that once used credit for travel, cafes and entertainment see monthly repayments rise or credit become harder to get. That directly explains cuts in discretionary spending (one‑third cutting entertainment/travel; over half avoiding cafes). Meanwhile, higher financing costs also slow investment in food production and logistics, which can tighten supply and keep food prices elevated — a nasty two‑way interaction.

For background on how rate changes transmit to loans and deposits, see a concise primer on the key rate and its effects: https://finance.mail.ru/card/klyuchevaya-stavka-704/. Forecast commentary about the policy path and the trade‑offs has been widely discussed, for example in reporting on central bank deliberations and projected policy levels in 2025–26: https://ria.ru/20250725/stavka-2031315600.html.

Broader picture: экономика россии, real доходы населения and spending patterns

Rosstat’s headline is important but incomplete. Aggregate statistics show real disposable incomes up ~7% in Q2 2025, and H1 growth near 7.8% (as reported by Rosstat coverage): https://www.interfax.ru/business/1040364 and https://erzrf.ru/news/rosstat-realnyye-raspolagayemyye-dokhody-naseleniya-vo-ii-kvartale-2025-goda-vyrosli-na-70-grafiki. Yet those figures can mask three things that explain why consumption falls despite higher averages.

  1. Distributional and composition effects. Income gains are often concentrated (public sector wages, one‑off social transfers, particular regions or sectors). Many households — especially lower deciles — may see little real improvement once local price shifts and higher household debt service are accounted for.

  2. Measurement vs lived experience. “Real” disposable income is adjusted by a CPI basket that may underweight staples or regional price spikes. Households buy food, transport and utilities first. If prices for staples jump or availability tightens, real purchasing power for essentials can fall even as the aggregate statistic rises.

  3. Precautionary and liquidity constraints. High interest rates make credit costly or inaccessible. Faced with uncertainty (job risk, higher expected inflation), families cut discretionary consumption immediately — entertainment, travel, dining out — to rebuild buffers.

The observed fall in physical food sales (roughly 5% overall, with milk, rice, buckwheat and pork down ~8–10% in Sept–Oct) is evidence that households are substituting cheaper items, reducing volumes, or shifting to home production and informal markets; see reporting on changing food demand and sales: https://www.kommersant.ru/doc/8162527. That triple combination — uneven income gains, high financing costs and shifting prices — explains much of the gap between headline incomes and shrinking потребительские расходы.

Prices and expectations: инфляция россия, staples and precautionary saving

Expectations matter as much as current prices. Surveys and analyses show inflation expectations in the population have been high (double digits in many months), which conditions behaviour: when people expect 10–15% inflation they act differently than when they expect 4%. That behavioral shift — buying less discretionary services, stockpiling some goods, saving for future price rises — suppresses consumption growth now. See inflation expectations analysis: https://sbercib.ru/publication/inflyatsiya-v-2025-godu and reporting on rising expectations: https://www.kommersant.ru/doc/8294535.

Two dynamics are important here. First, nominal deposit and loan rates react to the ключевая ставка, but real returns depend on expected inflation. If nominal rates don’t keep up with expected inflation, real incomes feel squeezed and people shift behaviour. Second, food price dynamics can diverge from headline CPI — a sharp rise in staple prices (or persistent volatility in supply) hits household budgets immediately and unevenly.

So what do households do? They cut non‑essential purchases. They buy smaller volumes of staples (hence the Kommersant sales drops in milk, rice, buckwheat, pork). They avoid services that require disposable cash (cafes, travel). That’s precautionary saving — rational from an individual standpoint, but it deepens the aggregate demand shortfall.

Does tight monetary policy raise stagфляция risk?

Stagфляция means slow growth or stagnation plus persistent inflation. A tight monetary policy reduces demand and can lower inflation, but if inflation is being driven largely by supply disruptions or stubborn expectations, a too‑tight stance can slow growth without curing price pressures — the textbook stagфляция outcome.

Russia’s risk profile in 2025–26 is mixed:

  • Demand side: high ключевая ставка cools consumption and investment (reducing GDP growth), and we already see weak consumer spending.
  • Supply side: sanctions, logistics bottlenecks and sectoral constraints can keep certain prices elevated, especially for food and inputs.
  • Expectations: if inflation expectations remain at double‑digits, they can be self‑fulfilling even as demand weakens.

Several analysts have warned about stagflation risks in this constellation (see discussion of policy trade‑offs and stagflation concerns): https://ria.ru/20250725/stavka-2031315600.html. The bottom line: tight monetary policy raises the risk of stagflation if it’s not paired with measures that relieve supply pressures and protect vulnerable households. But the risk is not inevitable — credible, gradual policy easing when data permit, plus targeted fiscal and supply actions, can reduce the probability.

Policy mix to prevent stagфляция while restoring consumption

There’s no single fix. The effective route is coordinated: a credible monetary path to disinflation, targeted fiscal relief to protect purchasing power for the vulnerable, and supply‑side measures to increase the availability and lower the price of essentials.

Monetary tactics

  • Anchor expectations first. Clear forward guidance: set conditional milestones for gradual rate cuts (e.g., inflation trend, anchored expectations, wage dynamics).
  • Use targeted credit facilities rather than broad rate cuts — refinance agriculture, food processors and SMEs with subsidized windows so supply expands even while headline rates stay restrictive. (This avoids reigniting demand‑side inflation.) See how rate transmission works: https://finance.mail.ru/card/klyuchevaya-stavka-704/.
  • Coordinate with macroprudential tools: lower mortgage risk weights to ease housing credit selectively; extend moratoria / restructuring where appropriate.

Fiscal measures

  • Targeted cash transfers or food vouchers to low‑income households (means‑tested) to protect nutrition without a broad demand stimulus.
  • Temporary VAT or excise cuts for staples, or direct subsidies to reduce retail prices for key goods. Careful design is required to avoid permanent structural distortions.
  • Support service sector firms (cafes, travel SMEs) with targeted payroll tax relief or temporary grants to avoid job losses that deepen demand collapse.

Supply-side policies

  • Rapid measures to boost staple supply (see next section on aquaculture and agriculture).
  • Logistics and cold‑chain investments to reduce post‑harvest losses and seasonality in prices.
  • Regulatory simplification and targeted investment incentives to speed capacity expansion in food processing.

All three arms must be time‑bound and calibrated — fiscal relief that’s too broad will re‑inflate demand; monetary easing that’s premature undermines credibility; supply measures take time but are essential to avoid repeating the cycle.

Supply-side options: expanding aquaculture and food production (аквакультура россия)

Expanding domestic food supply lowers prices sustainably, protects nutrition, and reduces import dependence. Aquaculture is a strong example: it can increase affordable protein supply faster than some land‑based livestock options if the policy environment supports rapid investment.

Concrete steps to scale aquaculture and related food supply:

  • Fast‑track licensing and reduce red tape for hatcheries and fish farms.
  • Provide targeted concessional financing or guarantees for aquaculture start‑ups and feed producers (these can be ring‑fenced so they don’t add to general credit growth).
  • Invest in feed and hatchery R&D and veterinarian services to raise yields and lower per‑unit costs.
  • Improve cold chain, ports and inland logistics so production reaches consumers at lower cost.
  • Support integration of small producers into retail and institutional buyers (schools, hospitals) via procurement programs.

For an overview of food‑security priorities and how supply measures can stabilize markets, see an analysis of food security measures: https://1economic.ru/lib/116664. Aquaculture isn’t a one‑quarter fix — but combined with logistics improvements and temporary price support it can materially improve food affordability within 1–3 years in many regions.

Short-term household relief and targeted fiscal measures

What can policymakers do fast — in weeks to months — to stop nutritional deterioration and blunt the demand collapse?

  • Targeted food vouchers or electronic coupons for staples aimed at the poorest households.
  • Expand school and pre‑school meal programs (keeps child nutrition intact and supports demand for local producers).
  • Temporary reductions of VAT on key food items, combined with monitoring to prevent rent‑seeking.
  • Short‑term wage subsidies or tax holidays for hospitality and travel SMEs to preserve jobs and prevent a permanent loss of service capacity.
  • Transparent price monitoring and consumer information to prevent unjustified retail markups.

These measures can shore up nutrition and demand among vulnerable groups without producing economy‑wide inflation, provided they’re well targeted and temporary.

Implementation roadmap and trade‑offs

A pragmatic sequence reduces risks:

0–3 months (stabilize)

  • Launch targeted cash/food support and expand school meals.
  • Offer time‑limited concessional credit lines to food processors and farms.
  • Strengthen price monitoring and communication to anchor expectations.

3–12 months (restore supply)

  • Scale aquaculture and other supply investments through grants, guarantees and regulatory simplification.
  • Gradually ease targeted monetary frictions (refinancing windows, lower reserve requirements for agri loans) while keeping headline policy credible.

12–36 months (structural resilience)

  • Continue logistics, cold‑chain and processing investments.
  • Move from emergency support to permanent productivity measures: R&D, training, market integration.

Trade‑offs to watch

  • Fiscal cost vs inflation risk: poorly targeted cash transfers risk re‑stimulating demand; targeted help is pricier per recipient but safer macroeconomically.
  • Credibility of monetary policy: a premature rate cut can unanchor expectations. Communication is crucial.
  • Timing of supply impact: supply‑side fixes take time; short‑term relief needs to bridge the gap without creating perverse incentives.

Continuous monitoring of household surveys, Rosstat consumption data and inflation expectations (e.g., SberCIB/central bank surveys) will guide the pace and mix of measures.

Sources

Conclusion

The paradox — rising real disposable incomes alongside sharp cuts in food and service spending — is driven by a mix of high ключевая ставка, elevated inflation expectations, distributional effects and supply constraints. Tight monetary policy is a central cause of suppressed потребительские расходы, and it raises stagфляция risk if not paired with targeted fiscal relief and supply‑side expansion (for example, in аквакультура россия and logistics). The cure is coordinated: credible, conditional monetary easing over time; narrowly targeted fiscal help to protect nutrition and vulnerable households; and fast, sustained investment in food supply and distribution so affordability and nutritional quality recover without reigniting inflation.

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Why Russians Cut Spending Despite 7% Income Growth 2025