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Thursday, November 16, 2006

Wages, Budget Deficits Etc

The principal news today is that real wage growth slowed year-on-year in the period between January and September 2006. This is hardly surprising, but equally it would be even more surprising if real wage growth in the coming six months didn't slow considerably more.

Hungary's September gross wages slowed significantly to 7.1% year on year from 10.8% yr/yr. The deceleration was more meaningful in the private sector (down to 7.6% yr/yr from 11.7% yr/yr). Public sector wage growth also moderated to 6.9% yr/yr from 9.3% yr/yr.

If we take into account inflation, then obviously real wage growth is considerably less:

Real wages in Hungary rose 4.8% yr/yr in January-September 2006, based on an 8.0% increase in net monthly wages from the same period of 2005 and an average CPI of 3.1%, the Central Statistics Office (KSH) announced on Thursday.

In fact if we look at what has been happening more recently we will find that real wages are now actually falling:

In September alone, real wages dropped 1.8% year on year, Econews calculated, based on a 4.0% year on year rise in net wages and twelve-month CPI of 5.9% in September.

As István Zsoldos from Goldman Sachs observes:

“These figures are still relatively high, although lower than the August ones that were boosted by bonus payments ahead of wage tax increases."

“We think that the NBH will remain worried about inflation expectations becoming entrenched and will hike rates by another 25 bps next Monday. Currently we are forecasting that this is going to be the top of the hiking cycle, but there is still a significant risk that the NBH might go further."

“Inflation will only peak in March next year, at around 8%, and worries about inflation expectations picking up will not go away at least until then, in our view."

Which all means than many think (and I concur) that the National Bank of Hungary is more than likely going to raise rates on 20th November:

The Hungarian statistics office's Tuesday report about a pick-up in inflation in October (6.3% vs. 5.9% in Sept ) and the forint's gradual strengthening against the euro have not changed the consensus estimate in merit that Portfolio.hu's poll showed on Monday. In that survey analysts have projected that the Monetary Council will raise the base rate by 25 basis points to 8.25% on 20 November. At the same time it is a crucial change in views from a month ago that now the respondents believe the end of the central bank's (NBH) rate hike streak will be reached this month.

Meantime the finance ministry is highlighting the fact that they will post (unexpectedly) a deficit in December:

In a rather unusual move, Hungary's Finance Ministry has on Thursday projected HUF 24.9 billion public sector deficit for December 2006 (cash based, excluding local governments), while in the last month of the year, the budget generally posts a surplus over booming tax and contribution revenues. Due to a technical reason, it will be different this year.

A little embarrassing this 'technical' detail, especially since Moody's have just made it known that some of their officials are currently on a visit to Hungary, of course there is nothing to worry about, since this is simply a 'regular' visit (hmm, hmm):

Officials of ratings agency Moody's are on a visit in Hungary, Finance Ministry spokesman Ferenc Pichler told on Thursday, adding that this is but one of the regular meetings between ratings firms and the government.
"This is nothing extraordinary. Delegations from credit rating agencies come regularly," Pichler said, adding that officials from another rating agency were in Hungary on Wednesday. On 25 September, Moody's Investors Service placed Hungary's A1 local and foreign currency government bond ratings and its A1 foreign currency bank deposit ceiling rating on review for possible downgrade. This is three notches better than the rating of Standard & Poor's and Fitch. The agency has not changed the rating since 2002, but moved to negative outlook in February. István Zsoldos of Goldman Sachs said than that Moody's statement made it "very likely " that there would be a downgrade, adding that the question was whether it would be a one- or two-notch move. Pichler declined to comment a question whether there was a connection between the negative outlook and the visit of Moody's officials. (portfolio.hu)

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