Czech wage growth could entrench inflation

As the cost of living rises in the Czech Republic, so are wages, potentially creating a long-term economic headache.

William Nattrass

Written by William Nattrass Published on 22.12.2021 10:11:00 (updated on 22.12.2021) Reading time: 2 minutes

Inflation is rampant throughout the Czech economy, with the cost of various everyday necessities seeing significant increases. In this context, those whose wages have stayed the same throughout the Covid pandemic are likely to notice that their money doesn’t go as far as it used to.

With increased wages an important measure of whether or not people are becoming poorer in real terms as a result of the pandemic, figures from the online salary portal may come as a relief. Gathered through a survey of more than 40,000 employees in the Czech Republic, they show average wage growth of 11.8% in the last two years.

Growth affected all regions, although the smallest increase was seen in Prague, where wages rose by only 5%. This is a concern for those living in the capital in the context of short-term increases in the cost of living, and a long-term increase in the price of real estate which makes owning a home an unaffordable dream for many; recent research found that a new apartment in the capital would cost the average Prague resident almost sixteen years’ wages.

Nonetheless, Prague has the highest average wage of CZK 48,400, according to Wage increases in the Czech Republic’s second city Brno are meanwhile bringing the South Moravia region close to Prague in terms of average wage, reaching CZK 43,900. The highest average wage increase was seen in the Hradec Králové region, where wages grew by 14%.

Across the country, higher wage increases were seen in people aged between 35 and 44. This is part of a natural progression, as people in this age category benefit more frequently from their previous experience by moving into higher management positions.

Sectors which saw high wage increases were healthcare, where pay rose by an average of 14%, partly as a result of high rewards and bonuses for those going the extra mile during the Covid pandemic. Other fast-growing wages were seen in insurance, education, science and research sectors.

As reported by earlier this autumn, the Czech Republic’s booming IT sector continues to record impressive wage growth, with IT experts seeing the largest growth of any individual profession.

Wage growth throughout the country may be a good indication that people will be able to keep up with rising consumer prices. But economists have warned that wage growth in line with consumer price increases could entrench inflation in the long term.

Trinity Bank Chief Economist Lukáš Kovanda said that the Czech National Bank’s attempts to control inflation through raising interest rates are an attempt to ward off significant increases in wages. “High inflation transforming into wage inflation is a very dangerous phenomenon. Then, the temporary inflation becomes permanent, having a much greater impact on people's lives.”

As prices rise throughout the Czech economy, it’s no surprise that wages are increasing too. Yet while protecting employees’ purchasing power in the short term, these increased wages could make the current spike in inflation a long-term problem.

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