Real wage growth slightly below 4% in Q1, driven by non-market sector
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
Average nominal wages also slowed slightly to 6.7% year-on-year in the first quarter of 2025, compared with 6.9% at the end of 2024, and reached a level just below CZK 47 thousand. Thanks to a gradual moderation in annual inflation, real wage growth continued at a rate of 3.9%. Quarter-on-quarter wage growth remained brisk, with annualized growth of around 6%, in line with our current forecast for this year. The recovery in purchasing power after the pandemic continues - although average wages in real terms remain around 4.5% below their pre-pandemic level (see Charts 3 and 4), disposable income may already be around 2.4% above this level.
The slight slowdown in year-on-year wage growth is mainly due to a more pronounced decline in dynamics in market sectors, to below 7% from 8% previously. This was partly offset by a marked acceleration in growth in non-market sectors - from 2.1% at the end of last year, when wages were under pressure from fiscal consolidation, to the current 6%.
According to the CZSO, quarter-on-quarter seasonally adjusted wage growth remains strong at around 1.7%, which corresponds to the average rate in 2024.My own estimate, however, suggests a more moderate rate of around 1.5%. The non-market sector in particular has a significant impact, where I estimate a 4% quarter-on-quarter jump in wages. By contrast, the growth rate in the market sectors has slowed to 1.3%, which is in line with the CNB's quarter-on-quarter forecast for this year.
The slowdown in market sectors is mainly related to weaker wage growth in industry, including a slight decline in the energy sector. In contrast, wages continued to grow at a brisk pace in construction and services. This also reflects the proclaimed shortage of workers in these sectors, see analysis here. This trend is also evident in the chart (see Chart 6), where only a small share of sectors still show so-called "non-inflationary" wage growth, i.e. below 4.5% in annualized terms.
GDP data for the first quarter continue to confirm elevated quarter-on-quarter growth in unit labour costs in business services of around 1.7%, which continues to put upward pressure on inflation. In line with this, core inflation remains elevated , with our estimate for May pointing to seasonally adjusted month-on-month growth of 0.28%, an annualized rate of 3.5%. This figure is slightly above the average growth of 3.3% over the previous three months.
