Economy 28 March 2023, 8:30am

Dramatic news on Hungarian earnings: living standards are in decline

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Gross average earnings in Hungary increased by 16.1% year on year in January 2023, bringing gross wages to HUF 528,000. However, record high inflation has caused real wages to fall by 7.6%, leading to a fall in consumption.

munka worker dolgozó hegesz fizetés bérek

Gross earnings growth reached 16.1% in Hungary in January this year, a lower wage dynamic than we have seen in recent months, in line with the Hungarian economy slipping into recession. With the minimum wage having risen by 16% and the guaranteed wage minimum by 14% this year, it is not surprising that average earnings growth has been similar. Gross average earnings rose to HUF 528,000, while the net average rose to HUF 351,000. At the same time, the average gross regular wage (excluding premiums and bonuses) is estimated at HUF 503,000, 17.3% higher than a year earlier.

Meanwhile, gross median earnings were HUF 422,000, 17.1% higher than a year earlier. Net median earnings, taking into account allowances, reached HUF 294,500, up 17% from January 2022. (Median earnings are a better indicator of the average person's salary, as the median shows the salary of the worker in the middle, ranked from lowest to highest.)

At the same time, with inflation at a level not seen for decades, there is no sign of meaningful wage growth, and the purchasing power of wages is falling. At the beginning of the year, consumer prices rose by 25.7%, causing real wages to fall by 7.6%. Against this background, it is not surprising that household consumption is falling, as the purchasing power of workers' wages is falling substantially.

The last time we saw such a fall in real wages was during the 2008-2009 global economic crisis.

Overall, the price-wage spiral that started in 2022 has started to ease this year. The previous accelerating wage dynamics have not been fuelled further and there is even a slight slowdown in the pace of wage growth.

Even so, wage growth is still dynamic, but far below inflation. However, the pace of price increases peaked in January, and from here on inflation should slowly ease. In other words, the fall in real wages may be smaller in the coming months, but it will continue to cause serious difficulties for families, holding back consumption.

With inflation this year expected to exceed last year's rate, while wage growth is expected to shift into lower gear compared to recent months, it is very likely that real wages will also fall on annual average. Real earnings are likely to move in line with our end-2022 forecast.