In our opinion, the slight increase in the unemployment rate is not a very worrying trend. Yes, there are some adjustments underway in the labor market, but this is more or less to be expected in a situation where the economy is experiencing four-quarter GDP declines on a quarterly basis. We expect small additional increases in the unemployment rate in the coming months due to seasonal effects, but even if we see a new increase in the indicator, the maximum could remain close to 4%.
Our relatively optimistic view arises from the supply side of the labor market, which is heavily influenced by the high inflation environment. This keeps people interested in having or getting a job and earning more. But as disinflation progresses, some of the workforce may be left out. This suggests that employers may face further difficulties on top of the labor shortages they are already experiencing.
In this context, companies will continue to insist on retaining staff, knowing that it will be difficult to increase hiring in the recovery phase with a structural labor shortage. Therefore, the guiding principle is twofold: companies are optimistic about the recovery of the Hungarian economy, but also pessimistic about labor supply.
We continue to view upward inflationary pressures as the main risk arising from labor market rigidity. Ongoing talks on next year’s minimum wage point to a possible agreement on an increase of between 10% and 15% which, barring any major inflationary surprises, would ensure significant real wage growth for next year. There are also rumors of some additional salary adjustments for inflation this year towards the end of the year. What could anchor inflation expectations is a long-term agreement on minimum wages, which also appears to be on the table with previously agreed minimum wage increases through 2027. In this sense, recent events – if they materialize – take us to believe that the probability of wage-driven inflation is decreasing in the long run.