December 4, 2017 / 9:23 AM / a year ago

Czech wage growth slows but remain demand driver in overheating economy

PRAGUE (Reuters) - Czech wage growth slowed in the third quarter but still ran at its second fastest pace since 2009 to remain the main demand driver in the overheating economy, data showed on Monday.

The average gross monthly wage grew by 4.2 percent from a year ago in real terms in the third quarter, as rising inflation bit, the Czech Statistical Bureau said. Nominal wages jumped by 6.8 percent.

The market had expected a 5.1 percent real terms increase, according to a Reuters poll, after a 5.3 percent rise in the previous quarter.

The weaker number may cool chances the central bank may deliver another interest rate increase in December, following rate hikes in August and November which put the main repo rate at 0.5 percent.

“We can expect that year-on-year growth in the average nominal wages will accelerate in the coming quarters and wage development will remain the key argument for further growth in the central bank’s interest rates,” Radomir Jac, chief economist at Generali Investments CEE, said in a note.

“But the third-quarter figure alone is not forcing the central bank to rush: respectively it allows the bank board to leave rates unchanged at the December meeting, and it can hold off with the next tightening for the first 2018 session in early February.”

Analysts expect the bank to raise interest rates several times next year in its drive to quash inflation and gradually return real rates to the positive territory. Inflation stood at 2.9 percent in October, above the 2.0 percent target.

Wage growth has been driven by labour shortage as domestic and foreign demand, aided by loose monetary policy in the past years, propelled the economy to 5 percent growth in the third quarter.

The government has also been raising the minimum wage and wages in the public sector, and more public sector wage hikes took effect in November.

Unemployment dropped to 3.6 percent in October, the lowest since current methodology records going back to 2008.

Reporting by Jan Lopatka; Editing by Toby Chopra

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