Economy 23 November 2023, 9:23am

Fall in real wages ends in Hungary, but workers cannot breathe a sigh of relief just yet

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In September, real earnings rose again compared with the same period last year. This breaks a year-long downward trend. However, employees cannot be too happy for the time being: on the one hand, wage dynamics have fallen and, on the other, they will only feel the increase in the value of their pay after the round of wage negotiations.

In September, the average gross salary increased to HUF 558,000, which is 14.1% higher than a year earlier, according to the latest data of the Hungarian Central Statistical Office (KSH). The average net wage was HUF 371,000. This indicates a slowdown in wage dynamics, as we have seen increases of over 15% in recent months. The last time we saw such a 'low' increase of around 14% was in early 2022.

However, the rate of increase in regular (excluding bonuses) earnings is slightly higher at around 15%. In fact, as the graph below shows, the already low rate of wage growth in the public sector has slowed further to around 12%.

The gross median wage was HUF 450,000, while the net median wage was HUF 300,000. (The median wage is calculated by ranking the salaries from the lowest to the highest. The wage of the worker in the middle will be the median. Half of the workers earn more than the median, while the other half earn less.) The rate of increase of the median wage does not differ significantly from the average wage.

The good news is that after a year, real earnings have stopped falling. Inflation fell to 12.2% in September, already below the rate of wage growth. As shown in the chart below, we also saw a 5-7% fall in the value of earnings during the period of 20-25% inflation, and then a smaller and smaller fall in the value of earnings as the pace of price increases eased. And in September, the real value of average wages increased by 1.7%.

But for the time being, workers are not feeling much of this. Although real wages have risen on an annual basis, there is still no improvement compared to previous months. The underlying reason is that workers generally receive a pay rise once a year. As long as there are no further increases, inflation will "eat away" at previous wage increases. As can be seen from the graph below (calculated on a fixed basis), real earnings in Hungary have actually been stagnating for months, i.e. we are neither better off nor worse off than in previous months (see here for more details).

So the real improvement will come when wages start to rise again. The minimum wage and the guaranteed wage minimum will increase by 15% and 10% respectively from December, which could also bring a substantial improvement in real wage developments. This will be helped by the fact that inflation will continue to fall. Most economists expect average gross wages to rise by around 10% next year, while inflation should tame to around 6%. This should allow real earnings to grow again in 2024 after the fall in 2023.