Wages will increase in Portugal this year, but not enough to offset inflation. The figures from the Bank of Portugal show that, in 2022, Portuguese workers will have a real cut of at least 1% in their disposable income. This reduction contrasts with recent years of real gains, according to the central bank's analysis.

"Real wages per worker in the private sector will fall by about 1% in 2022, reflecting the sharp rise in inflation," reads the June economic bulletin released this Wednesday by the Bank of Portugal.

However, at the press conference to present the bulletin, the governor of the Bank of Portugal, Mário Centeno, made a point of saying that this is an exceptional year. First of all because in the last five years the "real disposable income had unparalleled growths in the last 20 years".

According to Centeno, in the last six years, the average wage has grown by 22%, "a very significant number in view of the very low inflation rate" which, between 2016 and 2021, was 4% in cumulative terms. "There are very significant real gains here," the former finance minister finished.

"During 2023-24, real wage growth is assumed to average 2%, roughly in line with that of productivity," the bulletin notes. This means that real wage gains will return as early as next year, according to the central bank's current projections.

Centeno added at the press conference that the nominal average salary, without adjusting for inflation, grew by 3.5% last month. He again stated that there will be "real gains" in the near future when inflation slows to 2.7% in 2023 and 2% in 2024.

"While average HICP growth over the projection horizon is about 3.5%, nominal wages per worker in the private sector grow 1.5% above productivity over the same period," notes the Bank of Portugal. This projection includes the increases already announced for the minimum wage over the next two years.

Based on the results of the latest edition of the Rapid and Exceptional Enterprise Survey (IREE) - with responses from about 7,000 companies, which corresponds to a response rate of 74% - the Bank of Portugal found that 82% of companies anticipate an increase in wages per worker in 2022, while 18% expect a maintenance (compared to 76% and 23%, respectively, in 2021).

"The current context of high inflation may influence the evolution of wages, contributing to higher increases," admits the central bank, noting that "this effect may be reinforced by the economic environment, in particular by the labor market situation."

Although most companies expect an increase in wages, only 36% of companies expect a higher growth in 2022 than in 2021. The survey results point to an average growth in wages per worker of 5% in 2022, after a 4.2% rise in 2021.

As previously concluded, "these developments point to a real wage loss in 2022, which contrasts with the gains seen over the past five years," the central bank economists acknowledge.

There are no major differences between sectors, except in accommodation and catering, where the strong recovery of tourism and the resulting labor shortage will lead to a wage increase of 7.1% this year, 1.9% more than the same stat in 2021.

The survey also reveals that "growth in wages per worker is expected to be stronger in firms that anticipate a price increase this year. This should happen due to the greater ability of these companies to pass on the cost increase to the final consumer through the selling price.