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Thursday, July 17, 2008

Hungary Wage Growth Slows in May 2008

Hungarian wages grew in May at the slowest pace since January, easing pressure on the central bank to raise the key interest rate more from a three-year high. Hungary's monthly average gross wages rose by 9.6% year on year in May, down from 10.6% in April, according to data from the Central Statistics Office (KSH) Thursday. Net wages were up 8.4% year on year following an increase of 9.1% in April. Net real wages (ie allowing for inflation) were up 1.4%, the slowest rate since last January.

Ex-bonus wage increase in the private sector - possibly the most closely data point over at the central bank moderated to 7.4% year on year in May from 9.1% in April. The May increase is the smallest in the past two years.

Working day effects were evidently favourable this month, and were part of the explanation for the slightly slower rate of increase following the strong April data.

“Public sector wages were higher than the private sector ones - up at a 13.0% rate from 12.8% in April- but the changes in the timing of bonus payments continues to explain the bulk of this difference growth. As msot of the analysts are pointing out the wage data remain very noisy, and there may well still be "whitening" effects at work.

The central bank had earlier stressed that they saw accelerating wage growth as a sign of rising inflation expectations at a time when government austerity measures were weighing on corporate profits. Consumer prices have risen more than the bank's target for 23 months now, with the result that monetary policy makers have raised the benchmark two-week deposit rate 1 percentage point since March to its current 8.5 percent.

Policy makers, who will next discuss rates on July 21, decided to leave the base rate unchanged at 8.5 percent last month, arguing that gains by the forint - the world's best-performing currency in June - have been sufficient to take some of the sting out of inflation. The forint rose 6.7 percent against the euro over the past month.

The inflation rate fell to 6.7 percent in June from 7 percent in May. The bank expects inflation to average 6.3 percent this year and 4.2 percent in 2009, with the rate declining to 3 percent some time in 2010.

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