Czech central bank workers give up faster pay raises amid inflation battle

The Czech National Bank is seen in central Prague
The Czech National Bank is seen in central Prague, Czech Republic, August 3, 2017. REUTERS/David W Cerny

PRAGUE, Nov 11 (Reuters) - Czech National Bank employees agreed to cancel previous contracts calling for wage rises corresponding to inflation, the bank said on Friday, giving up bigger pay hikes while rate setters battle the fastest price growth in three decades.

The central bank has held interest rates steady since June, after sharply raising them since last year to combat inflation, which hit a rate of 18.0% in September, but eased to 15.1% last month.

Central bank employees, under previous contract conditions, would have been entitled to wage increases matching inflation plus 2.5 percentage points, which would have meant a rise of 18.3% this year and 11.6% in 2023.

Under a new deal, the average nominal wage will rise next year by 4.5%, the bank said, and by 8.0% this year based on conditions when the previous contract was signed in December 2021.

"In a time of high inflation, the biggest risk is unleashing a wage-inflation spiral," CNB Governor Ales Michl said. "Linking wage growth to inflation is inappropriate from a macroeconomic view, so that is why we canceled it."

The head of the bank's union group, Jitka Svobodova, said the group wanted to act responsibly and was taking a pragmatic approach to wages.

Michl also said board members' pay would be frozen until inflation comes down.

Michl has sought to bring inflation back to the bank's 2% target in 2024 and has said conditions like cutting fiscal deficits, preventing a wage-price spiral and keeping rates high were needed to achieve that.

The bank has kept rates on hold following 675 basis points in hikes brought the main rate to 7.00%, while it has supplemented policy with currency interventions to prevent the crown currency from weakening.

Reporting by Jason Hovet Editing by Tomasz Janowski

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