The Czech cabinet agreed on Monday to raise the minimum wage by 11% to CZK12,200 (€468) from the start of 2018. The new level represents 40.5% of the average wage.

The ruling Social Democrats – which are facing a difficult re-election battle in October – have been pushing for an increase in the minimum wage as part of a new more leftwing programme to counter the appeal of their populist coalition partners Ano. The increase in the minimum wage is the sixth in as many years.

Prime Minister Bohuslav Sobotka, together with the party’s election leader, foreign minister Lubomir Zaoralek, have criticised foreign multinationals for paying low wages, with Czech salaries still lagging well behind Western Europe. Local newspapers and analysts have highlighted the way multinationals are extracting hefty dividends from their Czech operations, while also depressing profits made in the country through creative transfer pricing.

Businesses, however, are struggling to fill vacancies in an environment of near full employment (unemployment was 4.1% in July, the lowest in the European Union), and the increase in the minimum wage will therefore only add to wage pressures in the economy, which have already sparked a rash of strikes.

Businesses had pushed for an increase of just CZK800, while trade unions had called for CZK1,500.

The central bank is also closely watching the impact of rising wages on inflation. Wages growth hit a new high of 5.3% in the first quarter of the year, hitting a monthly average of CZK27,889 (€1,059). This helped inflation accelerate to 2.5% in July, a factor in the bank's decision to raise interest rates at the start of August, the first central bank to do so in the current economic upswing.