The Turkish government’s resolve to curb stubborn inflation is set to be tested as workers advocate for a solid minimum wage hike to counter high living costs in upcoming wage negotiations.
President Recep Tayyip Erdoğan has vowed that minimum wage increases will continue to outpace inflation next year and that workers’ purchasing power will be safeguarded.
The scale of the challenge was highlighted by official data on Tuesday, which revealed inflation at 47.09% in November, higher than anticipated. This figure potentially diminishes the likelihood of an interest rate cut by the central bank this month.
Inflation has eased from 48.6% in October, moving further away from its peak of 75.45% in May.
The minimum wage was increased by 107% in 2023 when the year-end inflation rate stood at 65%. It was raised by 49% this year, five percentage points above the central bank’s final inflation projection.
Erdoğan has indicated that the government would pursue a similar strategy for 2025. The government will “ensure the purchasing power of our working population is protected,” he said on Nov. 20.
He has repeatedly emphasized that reducing inflation to single digits is the government’s primary objective, seeing it as the ultimate route to improving living standards.
Analysts believe the new wage hike will test Ankara's commitment to quelling price pressures.
For the past 18 months, authorities have adopted more conventional economic policies, implementing interest rate hikes and other measures to tame inflation.
Since June last year, the Central Bank of the Republic of Türkiye (CBRT) has raised its benchmark policy rate by 4,150 basis points and kept it at 50% since March.
It is watching monthly inflation closely as it decides when to cut its main rate, with expectations having grown in recent weeks that easing could come as soon as this month.
Negotiations on the minimum wage hike, which also serves as a reference for broader salary agreements in the economy, are set to begin next Tuesday. Erdoğan holds the final decision.
The general market consensus is that the wage hike will be around 25%, but there are expectations for a bigger increase. The adjustment will affect approximately 9 million workers.
The union leader representing workers in the talks 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 TL 17,000 ($489), see if they can get by for three days," Türk-Iş head Ergün Atalay told reporters on Tuesday.
Mahmut Asmalı, chair of the MÜSIAD business association, warned on Monday that a wage hike exceeding 25% could undermine the fight against inflation, cautioning that excessive labor costs might drive companies to relocate production abroad.
In October, the IMF's Türkiye mission chief advised against repeating the inflation-boosting minimum wage hike and instead focusing on support measures for the poorest segments of the population.
Last month, Erdoğan assured that “we will not allow retirees, civil servants, minimum wage earners, or any segment of society to be crushed by inflation.”
Earlier this month, the central bank adjusted its year-end inflation forecasts for this year and next to 44% and 21%, respectively. Previously, it had projected year-end inflation of 38% in 2024 and 14% the following year.
The government forecasted end-2024 and end-2025 inflation rates at 41.5% and 17.5%, respectively. However, Treasury and Finance Minister Şimşek recently stated that the year-end figure is expected to exceed these forecasts, likely reaching around 44%-45%.
According to Reuters calculations based on central bank studies, a 25% wage increase could elevate annual inflation by 1.5 to 5 percentage points.
Economists predict that inflation might rise by 4%-5% month-over-month in January, based on central bank graphs and their estimates.
