Wages continue to rise as predicted

Salaries in Latvia are rising at a stable rate. Average gross monthly salary in the third quarter of 2011  grew by 4.3% y-o-y, which is close to the result of the previous quarter (The Central Statistical Bureau substantially adjusted  the figure of the second quarter, from 5.5% to 4.4%). This confirms our forecast made at the beginning of the year that the annual rate of salary growth in 2011 (and 2012) will stay within the 3 – 5% range.

The adjustment of previous quarter's data took place on account of the public sector, thus countering the worries that salaries in the public sector are rising at a faster rate than in the private sector.  Up until the first half of 2011, the faster rate of growth in the public sector was determined by the low base and in part it was a compensation for previous steep salary cuts for teachers and some other groups of employees in the public sector. In the third quarter of 2011, however, a faster growth of salaries was observed in the private sector.  

It must be noted that annual salary growth has already resumed in all branches of the economy. Among the fastest annual rates of average salary is the one observed in construction (6.8%), the branch where employers are complaining about the lack of qualified labour the most. In manufacturing salary growth is less (4.9%) despite the fact that in terms of production volumes and productivity this branch's performance during the year was much better.

Albeit we do not predict an increase in wage growth during the next few years, with inflation dropping substantially, purchasing power will grow, supporting domestic demand in the conditions of an uncertain external environment.