Slowing wage growth increases pressure on interest rate cuts in Poland
August labour market data surprised with weaker wage growth, increasing the likelihood of the Monetary Policy Council (MPC) cutting interest rates as early as October. Real wage growth, despite a slowdown, continues to support consumption and remains a key driver of Poland’s economic growth. Employment, however, remains stagnant, with no clear signs of improvement in the near term.
Wage growth in the corporate sector surprised on the downside in August – growth reached 7.1% yoy compared to 7.6% a month earlier and market expectations of closer to 8%. This is the second consecutive month of wage data falling short of forecasts.
The slowing wage growth suggests the MPC may consider an interest rate cut at its October meeting. The Council has repeatedly emphasized that the greatest concern/risk preventing a faster rate cut is the increased wage growth and core inflation. Both categories are correlated – high labour costs in the service sector are largely responsible for the persistently elevated core inflation. Declining wage growth should therefore translate into further declines in core inflation. Wage growth momentum continues to fall, currently reaching levels last seen in early 2021.
Annualized corporate sector wage momentum (%, seasonally adjusted)
Source: Statistics Poland, Pekao Research
Additionally, given the near-conclusion legislative process regarding the extension of freezing on household energy prices in the fourth quarter (another factor that has raised concerns for the Monetary Policy Council), the likelihood has increased that the Council will not wait for the November inflation projection and will decide to cut rates by another 25 bps in October.
Real wage growth has declined again, although it remains solid – slightly above 4% yoy. Consequently, despite weaker nominal wage growth but falling inflation, private consumption remains the main driver of Poland’s economic growth this year. This is also confirmed by improving consumer sentiment.
Real wage growth in the corporate sector (%yoy)
Source: Statistics Poland, Pekao Research
On the other hand, employment data in the corporate sector did not provide any groundbreaking information. Annual growth since the beginning of the year has remained within a narrow range of -0.8% to -0.9% yoy. Analysis of monthly changes paints a more interesting picture – in August, the number of full-time jobs fell by 13k mom, mainly in manufacturing, but this is primarily due to seasonality. In summary, employment has remained largely unchanged. We are moving along a path that is intermediate to 2023 and 2024, with no clear signs of a break in the stagnation trend.
Change in employment in the corporate sector since the beginning of the year (thousands)
Source: Statistics Poland, Pekao Research
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