Wages grew by 7 percent in Q1, above expectations
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Average wage growth reached 7% in Q1, slowing from 7.1% in the previous quarter (after revision, previously 6.3%), see Chart 1. The analysts' consensus according to Reuters was 6.3% and the CNB's estimate was 6.4%, but the figures for last year and the year before were revised significantly today. Thus, today's figure ended up above expectations, but the significant revisions make comparisons with earlier estimates less relevant. Average annual inflation in Q1 was 2.1%, leaving real wages up 4.8% year-on-year (Chart 2). This is the first year-on-year increase in real wages after more than two years of decline, although quarter-on-quarter real wages were already rising last year. The average wage was CZK 43,941, while the median wage was CZK 36,651, and it is the development of the median wage that somewhat spoils today's favourable value, as its dynamics slowed from 7% to 5.5%.For the whole year 2023, wage growth reached 8% (7.5% before the revision), and for this year the CBA forecast expects nominal wages to grow by 6%, while the CNB expects stronger growth of 7.2%, which, however, is rather confirmed by today's values. In real terms, wages should grow by around 4.5% this year and will probably reach their 2021 peak in 2026.
The sectors with the fastest annual wage growth in Q1 were health care and social work, administrative activities and water supply and storage, where the annual growth rate exceeded or was close to 10% (see Table 1, upper part). By contrast, the slowest growth was in public administration (+2.1%) and education (1.9%). In these two sectors, growth was also the weakest in terms of YTD developments, with average wages rising by 26%, while public administration and education grew by 17% and 14% respectively (Table 1, last column).
The CNB had expected wage growth of 6.4% in Q1, 6.9% in market sectors and 4% in non-market sectors. Growth in market sectors was stronger in the end, at 8%, with health services, wholesale and retail trade contributing to the acceleration compared with the previous quarter. In contrast, wage growth in non-market sectors was below expectations, at 2.2%, with education and public administration contributing most to the slowdown (Chart 3). It was the expectation of stronger wage growth (7.2% for the full year 2024) that was behind the CNB's noticeable upward revision of the base rate in its last forecast in May; today's data thus confirm the CNB's estimate on the one hand, but on the other hand it is noticeable, the higher-than-expected figure was probably driven by high wages or remuneration of high-income employees, as the median wage itself grew by only 5.5%, while it is the median wage that will have a stronger impact on household consumption (Chart 4).
In quarter-on-quarter terms (seasonally adjusted), average wages rose by 1.7%, at a similar rate to the previous quarters. In real terms, however, it has accelerated more noticeably above 2%, rising for the 4th quarter in a row.
After today's revisions, average wages rose 8% last year, but are growing more slowly in 2022 (5.3 vs. 4.3), Chart 5. Thus, while today's more favourable readings suggest that average wage growth may end up being slightly faster this year than the CBA's latest forecast estimate of 6%, the less positive news in this regard is the noticeable lag in median wages, which suggests that the stronger Q1 number was likely driven by stronger wages and bonuses for high-income employees.
