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Hungarian companies and workers agree on 2007 wage increases - extended

Hungarian trade unions and corporate leaders today reached an agreement on this year's wage increases, one day before the deadline for labor stoppages.

The two sides agreed to a nationwide recommendation of raising nominal wages between 5.5% and 8%, said Deputy Labor Minister Gábor Csizmár. Workers lowered their target range from 6% and companies raised theirs from 5% since the previous round of talks on January 26. „We managed to reach an agreement in the last second,” said János Borsik, a union leader. „Both workers and employers have had a hard time waiting for the negotiations to end and local talks to start since October.” Hungary's government wants to curb wage increases to rein in inflation that is set to accelerate to the fastest pace in six years. Today's agreement will help dispel the central bank's concern that the failure to curb spending power may result in highest interest rates, economists said. „At this level it seems that higher inflation will not propel wage expectations dramatically,” Gyula Tóth, an economist at Bank Austria Creditanstalt in Vienna, said in an e-mail. „The agreement is positive, as it likely will result in lower gross wage growth in 2007 than the central bank assumed.” Today's agreement, along with a government pledge to freeze public sector salaries, will result in wages rising about 4.2% this year, according to Tóth. That would mean 2% decline in spending power, given the government's estimate of 6.2% average annual inflation.

Higher „expectations” would lead to „the currently rising consumer price index being locked at a higher level,” central banker Péter Bihari wrote in an article published in today's edition of newspaper Népszabadság. Gábor Oblath, another policy maker who has rejected the need to raise the key rate on January 19, said a decline in nominal wages would be a key indicator for curbed inflation expectations. Wages after taxes were 3.8% higher at the end of November than a year earlier. Inflation is accelerating because of government measures aimed to curb the European Union's widest budget deficit. Prime Minister Ferenc Gyurcsány has raised taxes and increased utility bills by cutting subsidies for products such as natural gas and electricity. Consumer prices at the end of last year were 6.5% higher than in December 2005. The inflation rate may rise higher than 10% this year, for the first time since 2001, central bank Governor Zsigmond Járai said on January 19.

Employers estimate that the austerity measures, which included higher corporate income taxes and health-care contributions, will cost companies a combined Ft 700 billion (€2.7 billion) this year, Ferenc Rolek, a corporate leader, told reporters during a meeting with worker groups on January 26. „These series of negotiations took place in a very difficult situation, no wonder that neither side is cloudlessly happy,” Rolek said today. „This is a positive message for the future, that we can agree in important things.” The government on January 28 averted a strike at state-owned bus transit companies, reaching the same wage agreement, MTI news agency reported citing a government official. Workers at all 24 regional companies accepted the agreement, the agency said. (Bloomberg)