Economy 22 November 2024, 10:59am

Hungarian wage boom already slowing down, and will end rather soon

Portfolio

Wages in Hungary continued to rise substantially in September, according to the latest data from the Hungarian Central Statistical Office (KSH), although the rate of increase slowed down slightly compared to previous months. However, low inflation has led to a markedly rapid increase in the real value of earnings. What is certain is that the growth in purchasing power of wages will be as rapid this year (on an annual average basis) as has been seen only a few times in recent decades. Next year, however, wages could grow at a much slower pace than this year.

dolgozó worker gyár gyári munkás ipar kereset fizetés

In September, average gross earnings in Hungary rose by 12.5%, a slight slowdown from the above-13% levels seen in previous months.

In fact, the last time we saw such low wage growth was in 2021, if the distortionary effect of the firearms money is excluded.

01 Avg gross earnings in the Hungarian economy

As a result, the average gross earnings of full-time employees were HUF 627,400, while the average net earnings (excluding discounts) were HUF 417,200.

However, relatively lower wages are still being held down by this year's significant increases in the minimum wage and the wage minimum. The median gross wage was HUF 519,500, 15.5% higher than a year earlier. This is well above the increase in the average gross wage. Median net earnings reached HUF 345,500, according to Portfolio's calculations.

The pace of wage growth was different in the corporate and public sectors.

Wage growth in the corporate sector fell to 11.9% from 12.5% in the previous month.
In the budget sector, the KSH recorded a 14.1% increase, down from 14.4% in August.

Wages in the corporate sector may be held back by the unfavourable economic situation and a slight rise in unemployment, while in the public sector the impact of last year's large wage increases is starting to fall out of base.

03 Change of avg gross earnings at companies

The slowdown in the growth rate can also be seen in the evolution of regular earnings (wages without bonuses or benefits). As shown in the graph below, the slowdown in the rate of wage growth in the public sector has been most striking in recent months.

With wages continuing to rise at a brisk double-digit rate, while inflation has stabilised at a low level (3% in September), real wages are rising substantially. In September, the purchasing power of earnings rose by 9.2% year-on-year. This also shows a slight slowdown compared to the 10% increase in previous months, but still shows rapid growth.

Nominal wage growth has been particularly strong this year, which in a low inflation environment means that we could see one of the largest real wage increases in decades in 2024.

In more than 30 years, only 3 years have seen such a high rate of real wage growth.

06 Avg wage, inflation and real wage in Hungary

However, wage dynamics are expected to slow next year. On the one hand, the backward-looking inflation-based wage increase strategy will disappear altogether, with many people still giving major wage increases this year on the basis of last year's big price increase, and on the other hand, the minimum wage and the wage minimum will grow much more slowly in 2025 than this year. While in 2024 the minimum wage will rise by 15% and the wage floor by 10%, next year we will see increases of 9% and 7% respectively. This means lower wage increases for the lowest earners and a smaller wage inflation impact compared to this year (as the increase to the median wage is not as large to avoid wage inflation). Not surprisingly, there is a growing number of forecasts projecting wage increases well below 10% by 2025.

Cover photo (for illustration purposes only): Getty Images