Why wage-price spirals will not persist in the CEE

The acceleration in nominal wage growth rates in Central and Eastern European (CEE) economies over the past couple of quarters has sparked growing fears of wage-price spirals taking hold in the region. We think such fears are overblown. That said, while we don’t expect the self reinforcing cycles of higher inflation and wage growth to persist, earnings growth is likely to remain elevated, keeping core inflation in the CEE higher for longer. Several factors mitigate the probability of wages keeping pace with – not to mention exceeding – inflation in the near-term.

What you will learn:

• Historically, high CEE inflation has been associated with subdued growth, and even declines in real wages.
• Notably, even if rising inflation is partly responsible for the acceleration in wage growth in CEE post-pandemic, the rebound in activity since 2020 has also played a role, with unit labour cost growth being curbed by rising productivity.
• We think the ongoing slowdown in activity will take some pressure off labour markets in CEE.