(Bloomberg) -- Turkey’s minimum wage outlook is already being gamed out for clues that President Recep Tayyip Erdogan will dial back populist economic policies and deliver on a commitment to curb one of the world’s highest rates of inflation.
Talks are due to start in December over what’s a politically charged decision. Erdogan, who has the final say, has dramatically boosted the minimum wage in the past to curry favor with voters battling a cost-of-living crisis, raising it by 49% for this year.
That’s fanned domestic demand, making it harder to control inflation currently running at 62% and complicating the central bank’s goal of lowering it to 38% this year and 14% by end-2025. More than a third of the Turkish labor force earns the minimum wage.
Since his 2023 reelection, however, Erdogan has installed an economic team led by Finance Minister Mehmet Simsek that’s focused on more market-friendly policies. Central bank Governor Fatih Karahan, who took the top job in February, has hiked interest rates to 50%.
Investors hope for a lower wage raise for 2025 which sticks closer to the central bank’s projected inflation goal.
Deutsche Bank analysts Christian Wietoska and Yigit Onay forecast year-end inflation at 42% and 23% for 2025, with room for price pressures to ease by more next year. “This implies an increase for the minimum wage of 25-30% assuming a single hike for 2025, as it was for 2024,” they said.
A similar message has been privately conveyed to the government by the business sector, according to people with knowledge of the discussions.
Officials understand the concerns around a sharper hike but haven’t made any promises, the people said, asking not be identified because the conversations were confidential.
The Turkish government declined to comment.
Keeping the minimum-wage increase in line with the central bank’s inflation projections would signal to investors that the country is serious about getting it under control.
Erdogan has previously aggravated price pressures by pushing for cheap credit to fuel growth.
“Any increase above 30% would make it difficult to achieve the year-end inflation outlook within the central bank’s inflation trajectory by end-2025,” said Wietoska and Onay. “An increase of close to 25% would probably be ideal to both support the purchase power of consumers whilst at the same time limiting upside pressure on inflation.”
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