Relatively good news for inflation: statutory minimum wages were announced for 2019-2020

HUNGARY - In Brief 30 Dec 2018 by Istvan Racz

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Finance minister Varga announced this morning that statutory minimum wages will be raised by 8% both in 2019 (starting from January) and in 2020. This refers to both existing wage thresholds, the lower one for unskilled labor and a higher one maintained for unskilled labor alike. The news came after a meeting by the government's Permanent Consultative Forum, a tripartite body maintained for discussions with employers' representatives and trade unions.The decision sounds like moderately positive for inflation prospects. Statutory minimum wages were raised by 12-25% in 2017 and by 8-12% in 2018, the lower number being markedly more influential in both cases. To be in line with the MNB's 3% inflation target, minimum wages should not be raised by more than the sum of the inflation target and the sustainable rate of labor productivity growth, which must be around 2% per annum in these days, i.e. a total of 5%. Employers actually proposed this for 2019, or a 7% hike if the government is prepared to cut the rate of the social contribution tax from 19.5% to 17.5% of gross wages from January 2019. Trade unions, in turn, insisted on a 13-15% hike, which definitely sounded excessive.The actual decision, which was made by the government, as employers and trade unions were unable to reach agreement, represents a relatively good compromise between the two proposals, and also between growth and price stability. It is still inflationary, but not a lot, and it will likely avoid causing any disruption to the existing trend of GDP growth. Employers will get partial compensation from the government, through a 2 percentage point cut of the social contribution tax, effective from July 2019....