In the wake of rising prices, 24-year-old Noemi Turi has asked her employer for a 16 percent pay rise over what she considered acceptable just a few months ago, as double-digit inflation across Eastern Europe results in a growing number of requests for a raise.
The small company in which this student is in charge of content on social networks and advertising material, gave her almost the entire desired amount.
"I was in a good position for negotiations because the management of the company knows very well how much everything costs today," Turijeva told Reuters. "They know it's not the amount I just mentioned".
She said that living paycheck to paycheck with no money for savings was not an option for her at the very beginning of her adult life. She did not want to specify the amount of the new raise for Reuters.
Double-digit wage increases at a time of double-digit inflation present a new challenge for Central Banks in Hungary and Poland, where huge interest rate hikes have so far failed to curb inflation.
Wage growth in the Hungarian private sector in the first quarter of 2022 exceeded the forecasts of the central bank, and some analysts predict a growth of 15 percent at the annual level. Wage growth in the Polish corporate sector has also exceeded market expectations since the beginning of the year.
A rise in the minimum wage, tax breaks for those starting a career and public sector wage increases in a campaign spending spree that helped Prime Minister Viktor Orban win re-election in April have added to Hungary's inflation challenge.
With a minimum wage increase of a total of 15 percent planned for 2023, which is an election year, Poland appears to be on a similar path, and some analysts claim that a price and wage spiral is already underway in the region's largest economy.
It is difficult to claim that the spiral of price and wage growth has not already started in Poland, and we believe that inflation will rise above 15 percent during the summer and remain in double digits at least until the second quarter of next year," said Lajam Pič from "Kapital ekonomikas".
"Poland's policy mix is not harsh enough to give the economy a break, as tighter monetary policy is implemented slowly and is partially disrupted by a more relaxed fiscal policy".
The high food price shock carries the risk of confounding high inflation and earnings expectations.
"We have entered a new era for central banks, where reducing inflation is their only goal, even at the cost of financial stability and growth," said George Lagarias.
In such circumstances, central banks across Europe increased interest rates yesterday, and some of them did so to an extent that shocked the markets, and they also hinted at new increases in borrowing costs in order to curb inflation, which threatens savings and corporate profits.
"We have entered a new era for central banks, where reducing inflation is their only goal, even at the cost of financial stability and growth," said George Lagarias, chief economist at Mazars Management.
The European Central Bank's decision to raise interest rates came only a day after the European Central Bank agreed on a plan to curb borrowing costs in the southern part of the bloc in an extraordinary meeting so that it could raise rates in July and September.
After hinting at the first rate hike since 2011 last Sunday, European Central Bank President Christine Lagarde said inflation concerns in the eurozone were "well-founded" and that despite recent wage increases, there was a real risk of an inflationary spiral.
Wages in the euro zone are also rising, but some increases are temporary as employers across the bloc opt for one-off bonuses rather than permanent increases, according to Reuters.
Hungary's central bank unexpectedly raised one-week interest rates on deposits by 50 basis points to 7,35 percent in a bid to curb stubborn inflation.
Banrabas Virag, the deputy governor of the central bank, said that this increase is not the last and that he will continue the cycle of interest rate increases with "predictable and decisive steps" until he sees signs of curbing inflation, which could be in the fall.
The weakening of the forint, which fell by around seven percent against the euro this year alone, also encourages inflation.
The Hungarian central bank said that wage growth in the coming months will be one of the key factors in determining the duration and extent of the tightening cycle. Over time, this could pose a challenge in terms of competitiveness.
Although wages in Hungary are significantly below the level of those in Western Europe, a survey conducted by the German Chamber of Commerce showed that the large increase in wages is a concern for German companies operating in Hungary.
German companies are already predicting wage growth of almost ten percent on average this year, which is the highest ever.
Mercedes-Benz said it would raise wages at its Hungarian factory from July, while rival Audi said it had raised wages for Hungarian employees by more than a third over the past three years.
Šandor Baja, general manager of the employment company Randstad, believes that the fluctuation of employees worsens the situation with salaries and that employees, due to the lack of manpower, receive a significantly higher salary when they move to a new job at another company.
"The fact that around 30 percent of employees claim that they are seriously considering changing jobs should cause fear among employers," he said.
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