The latest wages and employment report
is now out from KSH. Real wages in Hungary dropped by 5.2% year on year in July when compared with the harmonised CPI, but this was a slight improvement over a 5.3% decline registered in June. What is obvious is that there has been a severe process of wage deflation in Hungary since the start of this year, although the pace is now slowing somewhat, with he sharpest fall in real wages being registered in February (-9%).
Here is the relevant chart:
Public sector gross wages have maintained a slightly higher rate of increase than last month (9.3% y/y up from 8.6% y/y last month) as expected due to a jump in bonus payments. Private sector gross average wages were up to by 10.8% y/y slightly under 11.4% y/y last month.
Despite the ongoing drop in real wages, employment has remained stubbornly stationary all this year, as the following chart illustrates.
2 comments:
- Public sector gross wages up 9.3% y/y
- Private sector gross wages up 11.4% y/y
- Inflation around 8%
So, gross wages should be still up slightly. Is all of the "severe wage deflation" due to a tax increase to balance the Hungarian budget? It's severe but it's a one time event. Hopefully.
Hi LA,
"Is all of the "severe wage deflation" due to a tax increase to balance the Hungarian budget?"
Yep. Social security contributions mainly. The net wages are up much less than the gross ones. Of course these inflation numbers are moderate by Latvian standards, but these are still a big headache, especially for the central bank, who would badly like to reduce interest rates to stimulate domestic demand which is collapsing on the back of the wage deflation.
Also note the fact that even with all the wage deflation the economy is NOT producing additional jobs. So the thing isn't working (yet, at least).
The principal culprit of this is exports, which simply are not increasing fast enough. The forint badly needs to fall to create enough competitiveness to be able to ramp up exports in a big way. But the central bank can't go for this due to the fact that 80% or so of the private mortgages are in swiss francs, and the impact on the balance sheets of a big devaluation would be disastrous. So they really are caught between the proverbial devil and the deep blue sea. Sound familiar? It should :).
I have just done two lengthy posts comparing Turkey and Greece on global economy matters, and examining the issue of population change and the structural role of private consumption and exports as age structures move.
The thing is, the EU 10 need the kind of growth that Turkey is equipped to have, but they don't have the age structure for this. And there are, of course, other issues, but this is the big one.
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