Real wages have, after a substantial period of wage deflation, have now started to rise again, and were up by 2.3% year on year in April. The problem is that if real wages stay in positive territory it is hard to see how inflation can come under control as what we have is a constant pass through of first round into second round effects, while unfortunately the presence of high structural oil and food prices mean that in Europe - which is a net energy importer - living standards do have to fall somewhat in order to be able to pay the new prices without a constant and vicious spiral in inflation.
Increasing expectations that interest interests rates would be raised on the back of this data immediately sent the HUF shooting up, and within 5 minutes of the announcement it had strengthened from 244 to 241.6 against Euro.
Alongside the wages data the Central Statistics Office also published employment details. The average number of employees in businesses employing at least 5 people and in the state sector was 2 million 745 thousand in January–April 2008. Some 1 million 943 thousand of these worked in the private sector and 719 thousand in the public sector.
The number employed in the state sector decreased by nearly 5.3% year on year, but has been rising steadily from the trough of 710,000 in January, and in April stood at 729,000.
while in the private sector has remained more or less constant on the year, climbing back in recent months after a steady decline in the second half of 2007.
In a second wave of HUF buying after lunch the HUF rose against the Euro, rising from 242 to 240.30 in the space 30 minutes, which set a five-year end-of-May Forint-record.
On inter-bank markets Euro was worth 244 HUF this morning and 248 yesterday morning, and this means an3% rise in the HUF has taken place within 36 hours.
In another indication of the rising yield expectations which have been produced the Hungarian Government Debt Management Agency (AKK) offered 70 billion HUF-worth of three-year bonds for auction this morning, but investors only bid for 60 billion HUF worth, leaving the AKK only able to sell 50 billion. But not only were 20 billion less bonds sold than planned, the yield rocketed to 10.02%, up from 9.22 in May.
The average yield now exceeds yesterday's benchmark reference-yield for three-year bonds by 11 basis points. The yield on quotations accepted today ranged between 9.90% and 10.15%.
We have to go back to the summer of 2004 to find the last auction average yield for three-year bonds at over 10%, whilst to find fewer bids than there were today it is necessary to go back to December 2002.