Labor costs in CEE grew faster in Q1

Erste Bank Research Team Erste Bank

On the radar

Final inflation number in Croatia in May was confirmed at 3.5% y/y
In Poland, core inflation eased to 3.3% y/y in May.
In Hungary, wage growth arrived at 9.8% y/y in April.
There are no other releases scheduled for today in the region.

Economic developments

In the first quarter of 2025 the hourly labor costs rose by 3.4% y/y in the euro area and by 4.1% y/y in the EU. In the euro area the hourly labor costs growth dynamics have been decelerating for couple of quarters. Comparison to the ECB wage tracker (the headline values that show negotiated wage growth that includes collectively agreed one-off payments, such as those related to inflation compensation, bonuses or back-dated pay, which are smoothed over 12 months) suggest that the wage growth should be further easing in the upcoming quarters. On the other hand, in the region, hourly labor costs ticked up in the first quarter of 2025. On average they grew 11.3% y/y up from 10.5% y/y in the last quarter of 2024. Such development is driven by increase of hourly labor costs in Czechia, Slovenia, Romania and Serbia in 1Q25. In general, the highest increases in hourly wage costs for the whole economy across EU were recorded in Romania (+16.1%), Croatia (+13.5%) and Slovenia (+11.9%). In Croatia, however, the downward trend continues as the growth of labor costs has been continuously decelerating from its peak at 17.6% y/y in 2Q24. Apart from Romania, Croatia and Slovenia, also Poland and Serbia experience growth of labor costs in double-digits.

Market developments

The FX market has been relatively stable at the beginning of the week, while long-term yields keep falling. Most notably in Hungary where 10Y yields went below 7%. Hungary sold USD 4 billion in a three-part dollar debt deal on Monday. The deal comprised USD 1.5 billion of long five-year notes (sold at 145bp above Treasuries), a USD 1 billion-sized long 10-year tranche and a USD 1.5 billion sale of 2055 maturity debt (sold at 175bp and 195bp above Treasuries accordingly). The demand was strong with combined bids excessing USD 14 billion. Romania sold RON 613.5 billion of government bonds maturing in 2033. Further in Hungary Daniel Palotai was confirmed to become fourth vice governor. He said that the central bank may try to lift economic growth once inflation and financial stability are under control. In Poland the policy maker Maslowska suggested the rate cut could take place in September as inflation risks have risen due to Israel-Iran conflict.

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Erste Bank Research Team

Erste Bank

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