CEE: Labour costs lag cooling demand

On the radar

• Hungary’s average gross wage growth accelerated to 7.5% y/y in July.
• Czech industrial producer price inflation increased to 2.0% y/y.
• Today, Serbia releases July current account data.
• In Czechia, the CNB will announce its rate decision at 14:30 CET.

Economic developments

Following last week’s look at relatively strong labour productivity gains across CEE, today we turn to the cost side of the labour market. Overall, labour cost dynamics in CEE remain relatively persistent despite an easing in demand for workers. Following the post-pandemic reopening, vacancy rates increased strongly through 2021 and into 2022, signalling robust hiring demand and increasing pressure on firms to attract and retain workers. Labour cost growth accelerated somewhat later, with the CEE7 average rising sharply during 2022 and reaching its peak in 2023. Since then, hiring demand has eased and vacancy rates have trended lower, while labour costs have moderated more gradually. In 2Q26, average labour cost growth across CEE7 remained around 5.6% y/y, compared with 3.2% in the EU, while the regional vacancy rate normalised around its lowest level in the past five years. This pattern partly reflects the continued adjustment to earlier inflation in the region. It can therefore be concluded that labour cost growth in CEE remains comparatively sticky, while demand for additional workers appears to have stabilised at relatively low levels.

Market movements

The Fed raised the target range by 25bp to 3.75-4.00%, its first hike in more than three years, stressing that inflation remains elevated and that the move should support a timelier return to the 2% target. The decision is likely to keep global yields elevated and could limit the scope for monetary easing across CEE, while supporting the dollar and weighing on regional currencies. Against this backdrop, the zloty weakened 0.4% d/d to EURPLN 4.35 as the dollar strengthened against the euro. In Poland, the Finance Ministry sold PLN 10.0bn of bonds against PLN 16.0bn of demand, while Finance Minister Domański described the auction as successful and linked the recent rise in Polish yields mainly to the broader global sell-off, higher oil prices and renewed inflation concerns.

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