Turkey hikes minimum wage, complicating the war against inflation

Turkey’s monthly minimum wage will be 17,002 Turkish lira ($578.31) in 2024, Labour Minister Vedat Isikhan said on Wednesday, marking a 49% increase from the level determined in July and a 100% hike from January.  The turn-of-the year hike  to compensate for cost of living increases is  a political urgency three months ahead of the critical municipal elections, but will certainly complicate the war against inflation. According to the few empirical studies available on the subject, the 49% hike could raise annual CPI by as much as 5%.

 

Turkey’s annual inflation rate edged up to 61.98% in November, its highest level this year but just shy of expectations, signaling that an aggressive rate-hiking cycle may be beginning to cool demand.

 

Commentary:  Stuck between economic realities and political necessities

Turkey will raise the minimum wage by 49% in the new year to take some of the pressure off living costs before local elections in a country where inflation is on track to surpass 70% in the months ahead.

 

That compares with an increase of more than 100% this year, delivered in two adjustments that contributed to faster price growth and pushed up the cost of labor. “We fulfilled our promise not to allow our workers to be crushed by inflation,” Labor  Minister Isikhan said.

 

The decision was in the spotlight of credit rating companies and investors seeking clues to the course of Turkish economic policies after a shift away from unconventional measures following May elections and with the approach of the municipal ballot in March. More than a third of the country’s workforce earns the minimum wage, which is also a reference point for wider salary agreements in the economy.

 

The hike announced by the minister is close to a level that several Wall Street lenders have warned would complicate the central bank’s efforts to curb inflation.

Goldman Sachs Group Inc. and Morgan Stanley have suggested the central bank could further tighten policy should the minimum wage adjustment be higher than 40%-50%.

 

On the other hand,  Ergun Atalay, president of the Confederation of Turkish Trade Unions, who participated in the negotiations with the government on behalf of the workers, said the workers’ expected minimum wage was 18,000 liras, Atalay said these negotiations should be held twice a year, adding, “We will challenge the decision.”

This attests to the difficulties Erdogan is facing to placate his constituency suffering from high inflation and his star economy minister Mehmet Simsek who lobbied for a lower hike.

The challenge now is how to placate a population enduring a cost-of-living crisis but without getting in the way of an effort to cut inflation almost in half by the end of next year. In a change from previous years that have seen two wage adjustments, the government is only planning a single hike for 2024.

Turks are due back at the polls on March 31 to vote for mayors across the country. Erdoğan has vowed to retake control of Istanbul, the biggest city, and the capital Ankara from the opposition, building on the momentum of his re-election earlier this year, when he began his third decade at the helm.

 

According to most polls, CHP mayors in Ankara and Istanbul, Messrs. Mansur Yavas and Ekrem Imamoglu are leading possible AKP candidates, who are yet to be nominated.

 

Erdogan and his nationalist ally  Devlet Bahceli are resorting to desperate measures to divert attention from the deepening economic malaise. Erdogan is insulting Netanyahu each day, hoping to bolster his support among Islamist-conservative voters. His ally Bahceli is demanding all-out war against PKK and its Kurdish ally in Syria, PYD/YPG to preserve the nationalist vote.

 

At the end, luck may decide which side wins  local elections.  A warm winter and falling energy prices  could temporarily put inflation in the backburner, and vice versa.

 

 

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