Czech wage growth below 5% needed to tame inflation, central bank governor says

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The Czech National Bank is seen in central Prague

PRAGUE (Reuters) – Czech central bank Governor Ales Michl said on Monday the state budget deficit needed to shrink and nominal wages should not rise too quickly next year, as the bank seeks to rein in inflation pressures.

“For rate stability, we need two additional things that will cut the circulation of money in the economy, meaning inflation,” Michl wrote in a weekly column for the Mlada Fronta Dnes newspaper.

He said results, not just words, were needed on the budget and nominal wages should not grow “more than, for example, 5%”.

“Simply don’t rev the wage-inflation spiral,” he said.

The central bank has held interest rates steady since June, after sharply raising them last year. Inflation hit 18.0% September, its highest level in three decades, but eased to 15.1% last month.

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Czech National Bank employees last week agreed to cancel previous contracts calling for wage rises corresponding to inflation.

Czech real wages fell almost 10% in the second quarter, according to the latest data, and some central bankers see diminishing risks of a wage-inflation spiral.

The central bank has forecast nominal wages to rise 6.3% in 2022 and 7.7% in 2023, but to fall 9.4% and 1.2%, respectively in real terms.

(Reporting by Jason Hovet; Editing by Edwina Gibbs)

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