Turkey’s 49% Minimum Wage Hike Balances Between Unions, Markets

(Bloomberg) -- Turkey will raise the minimum wage by 49% in the new year, close to a level that several Wall Street lenders have warned would complicate the central bank’s efforts to curb inflation.Most Read from BloombergThe Late-Night Email to Tim Cook That Set the Apple Watch Saga in MotionChinese Carmaker Overtakes Tesla as World’s Most Popular EV MakerApple Resumes Sale of Watches After Appeals Court Lifts US BanS&P 500 Rally Flashes Signs of Fatigue Near Record: Markets WrapTesla Plans Revamp of Smash Hit Model Y From China PlantThe monthly net minimum salary will be set at 17,002 liras ($577) as part of a single adjustment, Labor Minister Vedat Isikhan said in a televised news conference in Ankara on Wednesday. Goldman Sachs Group Inc. and Morgan Stanley have suggested the central bank could further tighten policy should the hike be higher than 40%-50%.“We fulfilled our promise not to allow our workers to be crushed by inflation,” the minister said.The government is looking to take some of the pressure off living costs before local elections in a country where consumer price increases are on track to surpass 70% in the months ahead. For President Recep Tayyip Erdogan, the choice was a compromise between the competing demands of labor unions and investors wary of rampant inflation.Turkey’s Labor Unions Confederation, which represented the workers during talks with the government, was asking for an increase to 18,000 liras and a two-time hike next year, according to its president, Ergun Atalay.The challenge 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.Chronic inflation that last year reached the fastest in almost a quarter century is eroding the purchasing power of Turks, prompting the government to raise the lowest salaries to retain popular support. This year, two adjustments resulted in an increase of more than 100%.Story continuesThe latest 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.Erdogan, long a champion of cheap money, has revamped the economic leadership team after his reelection in May. The focus has since turned to cooling off domestic demand, with the central bank raising interest rates sharply to counter inflation.The central bank predicts price growth will end this year at 65%, before peaking above 70% in May and then finishing 2024 at 36%. It’s pushed monetary policy onto a more conventional track by quintupling the benchmark to 42.5% since June and signaling it could be raised higher next month.Governor Hafize Gaye Erkan had said the central bank took changes to the minimum wage into consideration when compiling its inflation outlook in October.The 49% hike increases “the upside risks for inflation” but likely won’t derail it from the path projected by the monetary authority, according to QNB Finansbank economists led by Erkin Isik.“In case of a continuation of tight monetary policy, fiscal policy and appropriate government price hikes, the central bank could achieve its 2024 year-end estimate,” they said in a note published on Thursday.--With assistance from Baris Balci.(A previous version of the story corrected the speaker’s name in a deck headline.)Most Read from Bloomberg BusinessweekElon Musk Made 2023 All About HimselfWhat Dermatologists Really Think About Those Anti-Aging ProductsWhat the Oldest Lab Rodents Are Teaching Humans About Staying YoungThe Most Secretive Longevity Lab Finally Opens Its DoorsHow the Elf on the Shelf Took Over Christmas©2023 Bloomberg L.P.