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19.08.2022Wage growth failed to outpace inflation in the second quarter

In recent months, the focus of the economic debate has been on the rise in prices, and rightly so. Bulgaria has not seen consumer price index increases of over 10% on an annual basis in decades. This raises the question of whether wage dynamics and household incomes are outpacing price increases or, on the contrary, if we are witnessing real impoverishment. The published data for wages in the second quarter of 2022 allow for such a comparison, and the results are concerning, as inflation exceeds wage growth in almost all economic activities.

Firstly, significant wage disparities between different economic activities in the country persist. The highest wages in the second quarter were in the ICT sector (4206 BGN gross monthly), while the lowest were in the hotels and restaurants sector (1058 BGN). Quarterly, the average national wage increased by 125 BGN, reaching 1730 BGN gross, and most sectors of the economy clustered around or below the average value.

To assess whether wage growth surpasses inflation, we compare the dynamics of the average gross monthly wage on an annual basis for the last three months for which there are data available (May, June, and July 2022) with the change in the consumer price index on an annual basis for the same months. The difference between the two indicators allows us to evaluate whether real impoverishment is occurring, at least in terms of workers' incomes.

The comparison is not encouraging. The average annual wage growth in May and June is slower than that of consumer prices, with a mere 0.5 percentage point difference in April. Price increases exceed the average gross wage by 4 percentage points in May and by 3.2 points in June 2022. This could be interpreted as an acceleration of wage growth in response to high inflation, but we can only speak of a lasting trend in this direction after the publication of third-quarter data.

Among the different sectors of the Bulgarian economy, only trade and administrative and support activities demonstrate faster wage growth compared to inflation over the three months, while some other economic activities such as mining, culture and sports, hotels, and restaurants managed to exceed price increases in May but not in the remaining two months. Of concern is the fact that the healthcare sector, which has already faced serious staffing problems due to external labor market pressures, experienced the fastest decline in purchasing power during the second quarter. There is also a significant decline in the public administration sector and municipal services.

A similar trend is observed when comparing the dynamics of consumer prices and wages at the regional level. Only in one region of Bulgaria do wages grow faster than inflation - Sofia (region), with a difference of less than 1 percentage point in May and June. Pleven and Gabrovo also show relatively good performance. Meanwhile, in regions where wage growth significantly lags behind inflation - Kardzhali, Razgrad, Lovech - the difference exceeds 10 points in June.

The wage data for the second quarter only provide an initial glimpse into the reaction of the Bulgarian labor market and employers to the sharp change in economic conditions following the outbreak of the war and the sharp increase in consumer prices. It is not unlikely that we will see more significant wage increases in the coming months as employers try to maintain the purchasing power and standard of living of their employees.

It is important to note that the presented data here only pertain to workers' wages. A more comprehensive view of purchasing power will be provided by household income indicators, which include all other sources such as pensions, social assistance, and the like. Nevertheless, these initial and incomplete indications point to significant restrictions and even a decline in the purchasing power of workers.

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