Biggest Czech wage rise in 15 years adds to rate hike case

Czech real wages rose at their fastest pace in 15 years last quarter, rising 6.6 percent and adding to arguments that an interest rate hike may come sooner than the central bank anticipates. With unemployment at a record low and the lowest level in the European Union, employers have been under pressure to lift wages, giving domestic demand a boost in the export-oriented economy and helping push growth to over 4 percent last year.
To keep pace, the Czech central bank has been out front in Europe on tightening monetary policy, lifting its base rate three times between last August and February to 0.75 percent. The bank's latest staff forecasts see another interest rate hike around the turn of the year. But analysts expect the bank to move again in the third quarter, especially with the crown currency weaker than the bank's outlook assumes.
Monday's wage data added to that view, coming in above the median forecast of 6.2 percent in a Reuters poll. In nominal terms, the average nominal gross wage was 30,265 crowns ($1,371.94) and the median nominal wage reached 25,674 crowns. "The labour market is heading to new records in the coming quarters," said Pavel Sobisek, UniCredit's chief economist in Prague. "We see today's figures as an argument for raising rates by 25 basis points already in August."
Other analysts also said wages would continue rising at a strong pace, but some said the growth was only a touch above what the central bank has expected. Inflation is also running around the bank's 2 percent target. The crown was just off session highs in midmorning trade, up 0.2 percent to 25.750 per euro. It has hit its lowest level so far in 2018, near 26, in recent weeks.
The central bank's latest quarterly forecast assumes the crown trading around 25.20 to the euro on average in the second quarter. It has traded an average 25.4997 in the past 60 days, according to Reuters data. Governor Jiri Rusnok has said the bank may be able to raise interest rates faster if the crown's exchange rate strengthens more slowly than it expects.