Inflation to cancel out wage hikes in 2022

20 Jun 2022

Figures from the Portuguese central bank show that workers will have a real cut in their disposable income of at least 1% in 2022, in contrast to real gains made in recent years.

"Real wages per worker in the private sector will fall by about 1% in 2022, reflecting the sharp rise in inflation," according to the Bank of Portugal’s June economic bulletin.

However, Bank of Portugal governor Mário Centeno said this is an exceptional year, as in the last five years the "real disposable income had unparalleled growths in the last 20 years".

Centeno added that the average wage has increased by 22% over the past six years, "a very significant number in view of the very low inflation rate. There are very significant real gains here," he continued.

The bank’s bulletin added: "During 2023-24, real wage growth is assumed to average 2%, roughly in line with that of productivity.”

Centeno went on to say that the nominal average salary rose by 3.5% last month – not adjusting for inflation – and there will be “real gains” shortly when inflation edges down to 2.7% in 2023 and 2% in 2024, reports Portugal News.

"While average HICP growth over the projection horizon is about 3.5%, nominal wages per worker in the private sector grow 1.5% above productivity over the same period," said the central bank.

Furthermore, according to the latest Rapid and Exceptional Enterprise Survey (IREE), the Bank of Portugal stated that 82% of businesses forecast a wage increase per worker in 2022, whilst 18% predict wages will remain the same (compared to 76% and 23%, respectively, last year).

"The current context of high inflation may influence the evolution of wages, contributing to higher increases," said the Bank of Portugal, adding that "this effect may be reinforced by the economic environment, in particular by the labour market situation."