The June data from the Polish labour market are not easy to analyze. Wage growth in the corporate sector accelerated slightly in June to 9.0% yoy from 8.4% in the previous month, slightly surprising the market consensus expecting 8.6%. What was behind this increase?

• Firstly, another part of pay raises was paid in June at one of the mining companies, which increased the June reading by about 0.3-0.4 percentage points.

• Secondly, the relatively low reference base from the previous year.

• Thirdly, and most importantly - the rate of weakening wage pressure has slowed in recent months. Even excluding the volatile mining sector from the analysis, the annualized wage growth rate remains elevated, slightly below 10%.

Annualized wage momentum excluding mining sector (%, SA)

Source: Statistics Poland, Pekao Research

Elevated wage growth is one of the main concerns regarding the inflation outlook for some Monetary Policy Council members. Real wage growth remained around 4% in June, but we expect inflation to fall below 3% yoy in July and stabilize in the 2.5-3.0% range in the following months, resulting in an increase in real wage growth close to 6%. Household purchasing power will increase significantly, leading to a recovery in consumption in the second half of the year, which will limit the rate of decline in services and core inflation.

Despite the upward surprise, our forecasts for a decline in wage growth remain essentially unchanged, although their path may be bumpy. Citing the results of the National Bank of Poland's Quick Monitoring (a periodic survey report covering the broad business sector), we see that in the second quarter, the share of enterprises experiencing wage pressure decreased and fell below the multi-year median.

Meanwhile, average employment in the corporate sector fell by 0.8% yoy in June, compared to a 0.8% decline in May. More importantly, however, the number of full-time job positions increased by 2.5k compared to the previous month, which could be a positive sign given the overall weak year, which has seen nearly 20k job losses since its beginning. However, we take these data with a grain of salt due to its structure. The monthly decline in industry (by 10k) was perfectly offset by the "Professional, scientific, and technical activities" category. Something strange happened here, but we don't know what yet, so it's difficult for us to interpret the data. However, considering the above, employment growth remains moderately weak. Our forecasted acceleration in economic growth, and particularly investment, in the second half of the year may further support employment, which is currently recovering slowly – however, unfavorable supply-side factors (shrinking labour pool) must also be taken into account here.

Change in employment in the corporate sector in June by industry (thousand, month-on-month)

Source: Statistics Poland, Pekao Research

Cumulative change in employment since January of the year (thousand)

Source: Statistics Poland, Pekao Research