The Czech unemployment rate hit a new all-time low of 3.6% in October, the Czech National Bank (CNB) reported on November 8.
The number of job vacancies has been approaching the number of unemployed and is expected to reach parity soon.
“The decrease of long-term unemployment (24+ months) and unemployment with length of 6-9 months had the largest contribution to the reduction of total unemployment. Also, the ratio of the total number of unemployed to the number of unfilled vacancies fell to 1.3, the lowest since the new methodology was introduced in 1995,” Raiffeisen Bank International (RBI) said in a note.
As bne IntelliNews reported in its latest cover story Central and Eastern Europe (CEE) is booming, the downside to that is that labour markets are becoming increasingly tight. That is pushing up wages and so undermining the cheap-cost, export-orientated model most Central European countries have largely been using for the last two decades.
Wage-inflation pressures are building, and nominal wage growth is expected to be around 7% in 2017 and 2018, according to economists. A recent Czech central bank stress-test scenario assumed that upward wage pressures will be persistent, which will demand more tightening of monetary policy in the medium term.
The Czech National Bank (CNB) has already hiked rates twice this year. It raised its main interest rate by 25 basis points to 0.50% on October 2 as central bankers sought to combat inflationary pressures being generated by Europe's fastest growing economy.
Following strong industrial production numbers released earlier this week - output was up by 4.4% y/y in September - the CNB may raise rates again at its next meeting, say analysts.