A turnaround in wages is near in Hungary - Or is it?

Full-time employees’ average gross earnings were HUF 556,000 in August 2023, up 15.2% year on year. Average net earnings were around HUF 370,000 excluding tax benefits and HUF 383,500 including them, which correspond to a 15.2% and 15.1% yr/yr growth, respectively.

As inflation in August was still higher (16.2%) than the rate of wage growth, real wages fell again in August, although by "only" 1%, a much more modest decline than the 5-7% fall seen in the preceding months. However, real wages will certainly be positive in September, as we already know that inflation fell to close to 12% in the first month of autumn (while the rate of wage growth may have stagnated at around 15%).

However, the fact that real wages have fallen by only 1% is not something that workers can be very happy about for the time being, nor will it change their lives when real wages turn positive in the coming months. (We wrote about this in more detail here.)

This is reflected in the wage index calculated on a fixed base (relative to 2020). As the graph below shows, there has been no turnaround in real wages in recent months. Real wages are currently at 2021 levels, meaning that the wage increases of the past year and a half have been eroded by inflation. The reason behind this is that, although inflation has been falling on an annual basis, it has continued to rise on a monthly basis, while people generally only get a pay raise once a year.

Most people will have to wait until next January for the next pay rise, when the minimum wage and the wage minimum for skilled workers will go up (by 15% and 10% respectively), and most companies will raise wages again at the beginning of the year. However, some will have to wait until next spring (the end of the financial year) for the hike. In other words, even if the real wage index turns positive from September, we'll have to wait for the real improvement of the situation until 2024.

This year, it is virtually certain that real earnings will fall, with average annual inflation seen coming in close to 18%, while wage growth will be more subdued. Next year, however, could see a turnaround, with most forecasts suggesting that inflation could be a third of this year's.

Median wage
In August, median gross earnings were HUF 450,000, up 15.6% from the same month of 2022. Median net earnings reached HUF 300,000. Median earnings ranked in order of salaries show the wage of the worker in the middle, while the average may be in the 6th-7th decile.

Cover photo: Sigrid Gombert