Robust wage growth, slightly higher than expected, in January

HUNGARY - In Brief 26 Mar 2017 by Istvan Racz

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Since we wrote about the possible outcomes of the Monetary Council's next rate-setting meeting and quarterly inflation report on March 28 in our latest monthly report (about a week ago), the following facts have been reported, with possible implications on central bank policy:a) In January 2017, nominal net wages per employee rose by exactly 10% yoy in nominal terms, meaning +7.5% yoy in real terms;b) The number of full-time employees rose by 3.5% yoy in the same month, implying that the total wage bill of the government and enterprise sectors was up by 13.9% yoy, in nominal terms, in January;c) Retail sales rose by 3.9% yoy/sda, in volume terms, in January;d) The MNB's detailed report on the 2016 BOP confirmed last year's external income surplus at 5.4% of GDP, and the external financing capacity of the domestic economy at 3.5% of GDP;e) A moderate downward correction of domestic fuel prices has started, based on reports on weekly changes of MOL's wholesale prices; and finallyf) The forint exchange rate has not changed much, only marginal weakening has taken place, to EURHUF 310-311.Out of the foregoing, a) is up from an already very robust +7.8% yoy nominal growth in the whole of 2016, and is clearly unsustainable, even against the officially expected 6.5%-ish nominal GDP growth this year (which we believe to be more like +5.6%). It is also moderately higher than the latest MNB forecast: in December, the inflation report included 8.5% nominal wage growth in the enterprise sector for 2017, and the actual number was +9.1% yoy, the rest of wage growth coming from the government sector. One needs to take into account that an average 13% wage hike at publicly owned compan...