Economy 1 April 2025, 9:15am

Hungary wage growth surprises on the upside - Vincent! We happy?

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A major debate was decided by Hungary's Central Statistical Office (KSH) on Monday. Surveys summarising the wage increase plans of business organisations and companies predicted a low increase, while economists forecasted a wage increase of 8-10%. Based on past experience, one might have expected the latter expectation to be closer to reality. But the wage growth rate of over 10% surprised everyone. How much better off are Hungarians than five years ago? How much is inflation eating into our wage growth?

Average wages rose by 10.4% in the economy as a whole in January 2025, while the corporate sector increased wages by 9.9%. The KSH has put an end to the debate over whether wages could rise by 5-6% (as companies had predicted) or 8-10% (as analysts had expected).

the january wage increase exceeded all expectations.

The increase in earnings is mainly due to the fact that

the guaranteed minimum wage and the minimum wage have risen by 7% and 9% respectively, which has a wage-raising effect, and
companies do not really want to face a huge fluctuation, so they had to raise wages,
as workers would not have been satisfied with a simple inflationary wage increase. And inflation is rearing its ugly head again.

According to the latest KSH data,

the average gross earnings of full-time employees amounted to HUF 668,100, and net earnings reached HUF 459,000 including tax benefits.

Average gross earnings rose by 10.4% and average net earnings by 10.2%, while real earnings grew by a much more modest 4.6% compared with the previous year, precisely because of the rise in inflation.

As shown in the graph below, while corporate earnings excluding bonuses have increased by over 10%, the upward trend in inflation (green line) is eroding the purchasing power of wages.

Inflation is expected to remain relatively high for the rest of the year. Indeed, we already know that prices rose by 5.6% in February, following a 5.5% increase in January. Although most economists expect a slight slowdown, analysts are now forecasting an average annual increase of 5%.

However, it is also worth looking at wage developments from a further distance: since 2020, in just over five years, nominal wages have increased by 85% in HUF terms.

Adjusted for inflation, however, the increase over the five years to the beginning of this year is only 22%. In other words, inflation has eaten up three quarters of the increase in wages, while one quarter has been real wage growth - the increase in the purchasing power of earnings.