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Czech Q4 real wage growth hits 3-year high

Czech Q4 real wages grew at the fastest pace in almost three years as inflation decelerated.

Gross monthly wages adjusted for inflation added 4.6% from a year earlier, the most since the Q1 of 2004, the statistics office said today. The figure compared with a revised 3% increase in the Q3. The average nominal wage was 21,952 koruna (€779, $1,023), growing 6.2%. The inflation rate's decline to 1.5% from 2.9% in the previous nine months and a cut in income tax raised people's purchasing power at the time the economy grew 5.8%. Wage growth, which has lagged labor productivity gains, hasn't spurred inflation and will probably allow the central bank to leave rates at the European Union's lowest. „Although average real wage growth accelerated by the end of the year, we do not think it will be a big worry to the Czech central bank, once the development is put into context of productivity and unit labor costs,” said Radomir Jac, chief economist at PPF Asset Management AS in Prague. Paychecks on average grew 6.5% to 20,211 koruna last year, advancing 3.9% when adjusted for inflation. The Q4 real wage growth rate compares with a median forecast of 4.9% by three economists surveyed by Bloomberg.

The koruna fell to 28.16 per euro by 11:14 a.m. in Prague from 28.13 yesterday. The ask yield on the 6.95% bond rose 1 basis point, or 0.01 percentage points, to 3.70%. The bond's price fell 0.1, or 10 koruna per 10,000 face amount, to 124.20, according to Ceska Sporitelna AS prices. Wages are one of several uncertainties mentioned by the Czech central bank, which is looking for signs of accelerating household consumption that would warrant an increase in the benchmark rate of 2.5%. Monetary policy makers have left borrowing costs unchanged for five months. „Wage growth may represent a medium-term upside risk,” the central bank said in the minutes from the January 25 rate-setting meeting. „It was said that although wages in the lowest-paid jobs might have been depressed by the inflow of cheap labor, this factor may now be reaching its limits.” Among private businesses, the monthly paycheck grew 6.7% to 22,021 koruna, or 5.2% when adjusted for inflation, the statistics office said. There was a 2.1% increase in people on the payroll of private businesses in the Q4 and 1.7% in 2006 as fast economic expansion fuels creation of jobs.

State employee salaries advanced 4.4% in the October-December period from a year earlier to 21,712 koruna, which translated into a 2.9% real increase. The number of people funded from the state budget grew 0.9% in the last three months of 2006 and half a% for all last year. Czech salaries were highest among the countries in central Europe that became European Union members in 2004, according to calculations by Ales Michl, an economist at Raiffeisenbank AS in Prague. He expects Czechs to earn on average 25,000 koruna a month by 2010. Data on Q4 GDP will be released on March 9 and will offer additional information about labor productivity. (Bloomberg)