Labour costs blamed for service prices increase

Inflation in the service sector reached 3.3 percent, higher than the two percent in the goods sector. Experts blame high labour costs.

“Such a rise is mainly the effect of changes on the Polish job market. For some time now we have had a quick rise in wages, which means increased labour costs. In order to balance them, a rise in productivity is needed. However in many services, especially in those based largely on human labour, opportunities for increasing productivity are very limited,” explains Marcin Mrowiec, head economist for Pekao Bank.

The areas of the highest rise in costs are package holidays abroad, at 7.7 percent, medical services (5.1 percent), social services (4.6 percent) and services of hotels and restaurants (4.1 percent). The highest increase is seen in waste disposal, however, this is largely due to changes in regulations regarding waste management, as opposed to labour costs.

“Prices are falling for telecommunication and financial services because the application of new technologies allows it. Cutting hair or caring for old people will always take up the same amount of time,” said Małgorzata Starczewska-Krzysztoszek, an economist from the University of Warsaw.

Economists predict that labour costs may be among the main drivers of inflation in the coming months. Prices of goods are relatively stable, with the exception of food, which has been hit by drought and energy, affected by the international situation.

The rise in wages is driven by record low unemployment, at just 3.5 percent.

“Labour has become a rare good in Poland and the cost of it will be increasing,” says Mr Mrowiec. “From the point of view of economy as a whole, it’s a good thing. The closer our wages are to European levels, the better.”

The average service in Poland cost around 43 percent of the average EU level. This is fairly low, compared to the cost of goods, which stands at 73 percent of average European levels.