Salaries in the Czech Republic trailed central bank forecasts, potentially dampening concerns about entrenched wage-driven inflation and reinforcing arguments for interest-rate cuts this year.
Nominal wages increased 7.7% in the second quarter from the same period last year, data showed on Monday, compared with a projection of 8.6% set out by the Czech National Bank. While the real-wage decline slowed to 3.1%, that was still a deeper drop than the bank had predicted for the period.
Central bankers in Prague are closely watching pay hikes as one of the key indicators of home-grown price drivers as they aim to rein in inflation to the 2% target by the middle of next year. They’re weighing up a stagnant economy and declining household consumption against the potential risks that may arise from one of the lowest jobless rates in the European Union.
While inflation slowed to 8.8% in July from a peak of 18% in September last year, policymakers have said they won’t rush with monetary easing — and effectively ruled out cutting the benchmark rate from 7% at this month’s meeting. Salary trends in the first half of the year signal that inflation pressures stemming from the labor market aren’t as strong as the central bank had feared, according to Radomir Jac, chief economist at Generali Investments CEE.
“Wage statistics are therefore keeping in play the scenario, in which the central bank may start gradually lowering its interest rates in the fourth quarter,” he said.
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