Turkey's minimum wage talks set to challenge inflation strategy

Turkish workers pushing for a substantial minimum wage increase to tackle the cost-of-living crisis face a tough battle in upcoming talks as the government seeks to prove its commitment to curbing persistent inflation.

Wednesday December 04 2024 12:04 am

Reuters

Turkish workers pushing for a solid minimum wage hike to cope with a persistent cost-of-living crisis face a battle in looming wage talks as the government seeks to prove its determination to rein in chronic inflation.

The magnitude of that challenge was highlighted by official data on Dec. 3 showing inflation at a higher-than-expected 47.09% in November, potentially reducing the prospect of an interest rate cut from the central bank this month.

With inflation still raging, the union leader representing workers in the talks starting on Dec. 10 criticized those pushing for a restrained hike by highlighting the difficulties faced by those living on a minimum wage.

"Those who talk about the minimum wage should try to get by on 17,000 lira ($489), see if they can get by for three days," Confederation of Turkish Trade Unions (TÜRK-İŞ) head Ergun Atalay told reporters on Dec. 3.

He also cast doubt on how much the official data reflected reality on the streets.

"I do not feel this data in the market or the marketplace," he said. "Those calculations and real prices do not match."

Eighteen months into President Recep Tayyip Erdoğan's pivot to economic orthodoxy, interest rate hikes and other steps to tame inflation are undermining job seekers' prospects as well as leading companies to rein in labor costs.

The general market consensus is that the wage hike will be around 25%, but there are expectations for a bigger increase. The hike will affect some nine million workers.

Independent Industrialists and Businessmen Association (MÜSİAD) chair Mahmut Asmali said on Dec. 2 that he thought a wage hike exceeding 25% would harm the fight against inflation, warning of the risk of companies moving production abroad if labor costs rise too much.

The IMF's Turkey mission chief told Reuters in October the country should avoid a repeat of its last inflation-fuelling minimum wage hike and focus on support measures for the poorest part of the population instead.

Asked last month about the minimum wage hike, Erdoğan said, "We will not let retirees, civil servants, minimum wage earners, or any segment of society be crushed by inflation."

A Reuters poll showed annual inflation is forecast to fall to 26.5% by end-2025, while the central bank expects it to drop to 21%.

According to Reuters calculations based on central bank studies, a 25% wage increase would raise annual inflation by between 1.5 and 5 percentage points.

Economists say inflation may increase by 4-5% month-on-month in January, based on central bank graphs and their own estimates.

($1 = 34.7460 liras)