In early January, the Hungarian Central Statistical Office (HCSO) published the most recent set of labour market statistics (wages and unemployment rate). The salary growth from October indicates that firms are adjusting to the high inflation environment by providing additional, unscheduled wage increases to retain workers.
In October 2022, the gross average wage climbed 18.4 per cent from the previous year. When one-time payments and bonuses are taken into account, the underlying salary growth rate (18.5 per cent) is relatively comparable. This implies that recent compensation adjustments due to inflation are factored into base salaries. Even still, rising inflation is gradually eroding more and more of the nominal increase despite the substantial underlying salary growth. Due to the over 20 per cent headline inflation in October, real wages decreased by 2.2 per cent annually.
The private sector experienced a wage increase of 18.2 per cent year over year, which is much greater than the average for the entire year. Over the course of a year, public sector salaries increased by 18.6 per cent. Although the private sector salary rise can be considered exceptional, given all the cost-related difficulties in this area, there is a widespread perception of wage increase in this respect. This clarifies a lot about the state of the Hungarian labour market during the cost of living crisis.
According to employment data, the labour market is stable. For the past five months, the employment rate has been largely constant. The unemployment rate for November was 3.8 per cent; it has been fluctuating between this level and 3.6 per cent for the past four months.
When we look at the specifics, we can observe that the labour market has experienced more swings lately. This might be in part due to a split economy. While certain industries, like the service sector, are responding to the economy’s continual change with layoffs, other industries, such as manufacturing, are able to partially absorb these people. While the energy shock is having a greater impact on service providers, manufacturing continues to have a labour shortage due to the volume of new orders and capacity expansions.
It is also intriguing that more people entered the labour force on a monthly basis in November. Instead of increasing employment as a result, this increased the number of unemployed people. This leads us to the conclusion that as household budget pressure increases, more and more people are actively seeking employment, which raises the statistical unemployment rate.
Despite the recent resilience, more businesses will be compelled to begin a significant labour market adjustment if employers realize that problems are getting worse, with still high costs coupled with decreasing demand for their goods and services. We do not see the job market in Hungary creating a significant anti-inflationary shock in an environment with inflation rates of 20 per cent or more, since the labour market will remain tight and there will continue to be labour shortages in some sectors of the economy.
Seeing the data and the tendencies, one can assume that the unemployment rates are inflated by people looking for new jobs, which means that the numbers do not show a clear picture of the situation. With that in mind, it is quite impressive that they are under four per cent—at record lows. The peak of inflation is predicted to hit in March this year, so numbers may vary by then, however, at this point the labour market is stable and salaries are continually rising. The reaction of the government to the challenges of the crisis with its recovery plan has put Hungary on the right path toward curbing inflation and avoiding recession.