Steadily growing wages nibbled away by inflation in Latvia

The growth of the purchasing power in Latvia is uneven and outpaced by wage growth. Nevertheless, /while customers may find it painful to pay more on certain goods or services, with the real net wage growing by 6.3% in the third quarter, the purchasing power of the employed has improved, albeit not as strongly as the average wage (by 10.4%).

The differences in the effects of the pandemic and the rising inflation on various population groups, however, are increasingly intensifying. While the purchasing power of the employed is, on average, growing, people with constant incomes like, for example, pensioners or those whose benefits are not reviewed and increased on a regular basis, may find themselves in less pleasant circumstances. Although currently the problem is addressed by various temporary public assistance mechanisms, for example, support to pay energy bills, more vulnerable population groups are nevertheless facing stronger risks of a declining purchasing power.

Differences are significant also amongst the employed. For example, the pandemic posed major challenges to those employed in the sector of accommodation and food service, and their troubles are far from over. This is reflected in both declining numbers of employed and relatively more sluggish wage growth in this sector. At the same time, other sectors with better remote work opportunities (information and communication technologies) or less exposed to shrinking demand (construction) have been able to increase the wages of their employees relatively more. Remuneration has also grown to a larger extent in the health care sector on account of higher wages and additional pay related to extra work in the pandemic circumstances.

Looking at the wage growth data in the context of the same period's low unemployment and rising employment, the third quarter's data seem promising from the point of view of household welfare. It is also true, however, that we are navigating through such eventful times that the statistics on a two-month-old period no longer provide a fair representation of the today's landscape which is changing on a weekly and even a daily basis. It is likely that the overall picture at the turn of the year will reveal more tightening in the labour market caused by stronger restrictions on sellers of certain goods and service providers during the lockdown and later as well as the mandatory vaccination requirement in the public sector and for on-site workers. Nevertheless, the above factors rather have a stronger effect on the numbers of employed and intensify the risks of unemployment, while wages at the end of the year continue to be supported by the persistently high labour demand.