Hungary: Decent wage growth in July

The Hungarian average gross and net wages remain strong in July, reaching a 10.7% year-on-year increase.

The pace of growth even showed a slight acceleration compared to June, and also exceeded the average of 1H19. Actually, the decent reading was the product of two offsetting factors. While wages in the business sector showed an almost 12% YoY increase, it was counterbalanced by the 7.1% yearly growth in the public sector, despite the general wage increase in healthcare. Since September 2018, the business sector has been outperforming the public sector in terms of wage growth.

Wages in the manufacturing and construction sector, as well as in agriculture and the retail sector (which have been most severely hit by labour shortage) increased well above the average. This basically supports the view that the process is mainly driven by the tight labour market, while the reduction of social contribution tax in July just added to it. The expensive labour force is weighing more and more on product and service prices, as productivity lags behind nominal wage increase.

When it comes to employment, it showed a seasonal increase in July, while the yearly average is really close to full employment. The number of all workers rose by only 0.5% since January, while employment dynamics in the primary labour market was almost twice as strong. This means that both unemployment and the number of fostered workers could decrease in the period, providing some extra human resource for companies to hire, while at the same time reducing costs and rising tax income for the budget.