Public Sector unions threaten to strike as inflation cuts into real wages across the board

Photo: archive of Radio Prague International

Wages in the Czech Republic are growing, but not enough to cover for the rapid rise in inflation. Data released by the Czech Statistics Agency on Tuesday show that real wages fell by 3.6 percent on average during the first quarter of 2022. The hardest hit are public sector employees, whose trade unions have threatened to go on strike if their demands are not met by the government.

Statistics show that while the average salary grew faster, by 7.2 percent, in the first quarter than it did last year, real wages have actually been falling across most sectors due to inflation. The hardest hit is the public sector, where the real wage has fallen in a space of four months by 8.4 percent.

Josef Středula | Photo: Filip Jandourek,  Czech Radio

Following a meeting with the government, the head of the Czech Confederation of Trade Unions, Josef Středula, said that the executive’s proposals to cover the inflation surge are wholly insufficient.

“We are not requesting a rise in salaries, we just want to retain their purchasing power. Unfortunately, none of the government proposals came anywhere near to that.

“The ‘best’ proposal we heard would mean a 7.5 percent fall in real wages for those public sector employees who have not received any raise so far this year. For those who did, it would still mean a decrease in their real wage. And that was the best proposal we got.”

Marian Jurečka | Photo: Office of Czech Government

The next day public sector trade unions announced that they are ready to go on a strike. For now, Labour Minister Marian Jurečka remains cool headed, saying that the government is ready to raise salaries but not so high as to cover for inflation.

Doing the latter would mean an extra CZK 20 billion from the budget, the labour minister said, something that the government wishes to avoid given that its planned budget deficit already lies at CZK 220 billion for this year.

It’s not just the government that isn’t happy about the trade union demands. Several economists and business representatives have warned that raising wages at such high rates would only create more risk of an inflation spiral.

Petr Fiala | Photo:  Francois Mori,  ČTK/AP

Prime Minister Petr Fiala echoed this opinion on Tuesday, saying that the government’s chief task was to try and curb inflation as much as possible.

“If we followed all of the trade union proposals and raised salaries so high, then we would get into the situation where we increase wages for one group but with the effect that the savings of everyone would be further devalued and the real value of wages in general would fall further.”

It isn’t just the savings of people that have taken a hit, but also their prospects for homeownership. The Czech National Bank’s sharp raising of interest rates over the past year has also led to mortgage interest rates being at their highest in more than ten years, a phenomenon that economist Štěpán Křeček believes will also have an effect on the construction sector.

Štěpán Křeček | Photo: Jan Bartoněk,  Czech Radio

Amid these concerns, many eyes are now on the Czech National Bank, which is set to get a new governor next month. The current head of the country’s central bank, Jiří Rusnok, has been a proponent of raising interest rates already since last year. His successor, Aleš Michl, says he would now like to stabilise the rates.

The Michl faction is currently in the minority on the bank’s council, but this could change after President Miloš Zeman names two new members this Wednesday. The president has thus far kept his choices secret.

Many analysts expect inflation to hit its peak in June or July, when it could breach the 16 percent mark. While the interventions of the central bank play a very important role in managing the phenomenon, economists stress that it is outside factors such as the rise in energy prices that will be key in how the trend develops.