Real wages in Czechia are falling faster than the EU average

Real wages in the Czech Republic will decrease by 8.3 percent this year due to inflation rising faster than increases in wages. The drop is larger than the EU average, and the largest among countries of the Visegrád Group, which consists of Czechia, Slovakia, Poland, and Hungary, according to an analysis by investment company Cyrrus made available to ČTK.

"We have been experiencing negative growth in real wages since last year, and there should not be any significant change in the coming months. The high price level is negatively impacting households' wealth,” Cyrrus analyst Anna Píchová said.

While high inflation negatively affects everyone, the impact is much greater on lower income groups, Píchová added.

The decline in real wages in Czechia is happening significantly faster than in neighboring countries. While a decrease of 8.3 percent is expected in Czechia, the EU average is lower by 2.3 percent and the remaining Visegrád states expect an even milder decrease. In Poland, real wages should decrease by 2.1 percent, in Slovakia by 1.1 percent, and in Hungary by 0.3 percent.

While other European countries on average will see an increase next year, that will not be the case for Czechia. Real wages in European are expected to grow by 0.6 percent. Real wages should increase just as fast in Poland, in Slovakia growth should reach 0.7 percent and in Hungary 2.3 percent. In Czechia, the analysis predicts a further decrease in real wages by 0.1 percent.

Wages in Czechia, though, are the highest among the Visegrád Group, according to a survey by tax consultancy Mazars released in June.

Cyrrus’s Píchová said the development of real wages in Czechia is among the worst in the EU. "The reason for such a decrease is high inflation, as wages in the Czech Republic are still growing in nominal terms due to the persistent excess of demand over supply on the labor market," she said.

"The negative growth of real wages should continue in 2023, mainly due to the combination of constantly increasing price levels and also thanks to the slowdown in nominal wage growth," she added.

The reduction in real wages should only be temporary and an early improvement can be expected, according to Cyrrus. "We must not forget that our net disposable income has grown over the past decade. Looking back, we have to state that we are better off than a few years ago. We are even better off than if our wages only increased every year about the level of inflation, thanks to the development of the economy, wage growth, and the associated growth in disposable income," Píchová said.

According to the Czech Statistical Office, in the second quarter of 2022 the average gross monthly nominal wage per full-time equivalent employee increased by 4.4 percent compared to the second quarter of 2021. After taking into account inflation, real wages fell by 9.8 percent. It was the third quarterly drop in real wages in a row. Wage figures for the third quarter of 2022 are not yet available.

Inflation already shows signs of slowing down. Inflation calculated as an increase in the consumer price index compared with the corresponding month of the preceding year, reached 15.1 percent in October. This was down from a peak of 18 percent in September. Inflation began to rise sharply in July 2021.

The rise in inflation is driven by higher prices for electricity and fuel, as well as for basic foodstuffs such as meat, butter, and flour.