Turkish President Recep Tayyip Erdogan has pledged that minimum wage increases will continue to exceed inflation rates through 2025, aiming to safeguard workers' purchasing power amid persistent inflationary pressures. This announcement follows Erdogan's return from the G20 summit in Brazil, where he emphasized the importance of protecting the working class's financial stability.
The Turkish government is set to commence negotiations for wage increases next December, with Erdogan retaining the final decision on any adjustments. Wage increases are critical in determining inflation rates for the upcoming year, and investors are looking for increases that align with the central bank's forecast of inflation dropping to 21% by the end of 2025. In 2023, the minimum wage surged by 107%, significantly outpacing the annual inflation rate of 65% at that time. For 2024, Erdogan announced a 49% wage increase, which is 5% higher than the central bank's inflation forecast.
Erdogan reiterated that the government will continue its strategy to protect the purchasing power of the working class, with a long-term goal of reducing inflation to single digits to improve living standards. Currently, the net minimum monthly wage stands at 17,000 Turkish liras (approximately $493), which is a crucial benchmark for salary negotiations, as it supports more than a third of Turkey's workforce.
Market analysts have expressed concerns regarding the potential impact of wage increases on inflation. Deutsche Bank analysts suggest that increases around 25% would be preferable to maintain inflation control, warning that hikes exceeding 30% could unsettle markets. Meanwhile, Morgan Stanley predicts inflation will reach 44.5% by the end of 2024, before declining to 26% in 2025, contingent on a 30% wage increase. Economists have urged the government to tie wage increases to actual inflation rates rather than expectations, to better address the needs of workers. Despite a decrease in inflation from a peak of 75.5% earlier this year to 48.6% in October, the cost of living remains a significant challenge for many Turkish families.
