Average gross wage in Hungary slightly above HUF 650,000 in May

In May, the average gross earnings of full-time employees were HUF 652,000, 14.8% higher than a year earlier, according to data from the Hungarian Central Statistical Office (KSH). Average net earnings excluding discounts reached HUF 433 600, up 14.8%.

• A major contributor to wage growth this year is that the minimum wage increased by 15% last December, while the guaranteed wage minimum increased by 10%. This not only affects the lowest wages, but also the higher wage brackets to avoid wage inequality.
• The fact that, after the inflationary crisis of the past two years, employers will have to make much larger than usual changes to wages if they do not want to see a spike in turnover is also a major reason for wage increases. After all, the fall in living standards last year has left many people dissatisfied and open to change.
• Also pointing towards rapid wage growth is the fact that although labour market tensions are easing, labour shortages remain significant, leaving workers in a favourable bargaining position. In other words, the fall in vacancies has not in itself put workers in a bad position, as the labour market is fundamentally tight.

Despite the above, analysts had expected the slowdown in wage growth seen in the past two to three months to continue, as employers' wage growth options may be limited and the economy is not very robust. In contrast, the May data came as a surprise, as wage dynamics accelerated, as shown in the chart below. In other words, the case for rapid wage growth, as outlined above, remains very strong.

Median earnings increased even more than the average. Gross median earnings were HUF 525,100, 16.9% higher than a year earlier. The net median was HUF 349,000, according to Portfolio's calculations.

In the business sector, the KSH measured a 13.5% increase in wages, which indicates that an acceleration is also visible here. After 11-12% growth in recent months, wage dynamics are now higher.

In May, the average gross wage in firms exceeded HUF 650,000, while the median net wage was below HUF 350,000.

This year's wage increase is being driven by the very significant rise in salaries in the public sector, where the dynamic is close to 20%. This is largely due to an increase of over 25% in education.

With inflation having fallen to low levels in recent months, real earnings have risen strongly on the back of rapid wage growth. As the chart below shows, real wages have risen by around 10% in recent months, with growth even accelerating slightly in May.

The favourable wage data are interesting for several reasons. On the one hand, the National Bank of Hungary is keeping a close eye on whether wage increases induce new inflationary pressures, as companies often respond to large wage increases by raising prices. However, the weakness of demand even with a significant wage increase may limit price increases. Faltering retail sales are the biggest puzzle for the big rise in real wages, as most experts expected consumption to grow strongly this year as purchasing power in wages expanded. However, the weak retail sales data show that the public remains very cautious as the savings rate remains at extremely high levels.

Cover photo is an illustration. Source: Getty Images