CEE ECONOMY-Czech real wage decline slows in second quarter

Czech real wages fell for a seventh straight quarter in the April-June period, data on Monday showed, although nominal pay growth was below central bank expectations, leaving a path to interest rate cuts. The average real monthly wage fell by 3.1% year-on-year in the second quarter, the slowest decline since the end of 2021, the Czech Statistical Office said. Analysts in a Reuters poll had expected a 2.4% fall.

Nominal wages rose 7.7% year-on-year in the quarter, below a central bank forecast of 8.6%. "The development of wages in the first half of the year indicate that wage dynamics and related inflationary pressures from the labour market are not as strong as the (central bank) feared," Generali Investments CEE chief economist Radomir Jac said.

"Wage development statistics leave in play the scenario that the (central bank) in the final quarter of the year could start the process of a gradual reduction in interest rates." The Czech National Bank has kept its main rate at 7% since June 2022 as inflation first shot up to 18% and since fell to 8.8% in July.

It switched its tone from hawkish to neutral in August and said it may start debating rate cuts before the end of the year, but has at the same time insisted rates would stay relatively high for longer after years of ultra-loose policy. Wages are a key factor, with the Czech labour market the tightest in the European Union. However, the drop in real wages has been one of the sharpest.

Pavel Sobisek, UniCredit's chief economist in Prague, said similar nominal wage growth trends should continue, leading to the end of real wages' decline this quarter. "Most employees will probably wait for growth to resume until the beginning of next year... and it may raise concerns about the start of a new inflation wave," he said.

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