Hungary: The wages vs consumption puzzle continues

Here we go again with yet another upside surprise when it comes to labour market statistics. Yesterday’s unemployment rate showed an unexpected improvement and after the January upside surprise, wage growth came in higher in February. Wage growth didn't just surprise on the upside, it accelerated compared to January despite the significantly lower minimum wage increase which kicked in in February. The 9.8% year-on-year growth of average gross (and net) wages in February are remarkably sound amidst a crisis.

The strong earnings figure remains puzzling, although technicals are playing a role here. Based on the institutional employment statistics, the number of employed increased around 0.7% month-on-month. However, this improvement came from significantly higher demand for labour in high-earning sectors (IT, finance etc.), while low-earning sectors were still suffering from the closure of in-person activities. So, this composition effect is impacting the average wage level in a positive manner. However, this in itself hardly explains the near double-digit wage growth.

What could explain this is the ongoing public sector wage settlement. Due to planned wage rises in certain government segments – including pay rises for doctors, judges and prosecutors, and employees of nurseries – the growth of average wages in the budgetary sector (13.5% YoY) exceeded that of the national economy in February.

In addition, there are green shoots in the private sector too: wage growth in the private sector came in at 8.9% YoY on average, showing an acceleration compared to the previous month. This is mainly due to the stronger salary increase in agriculture, mining, construction, retail, finance and real estate sectors.