The overlooked minimum wage detail in the Inflation Report meeting: Will there be a second raise?

The Central Bank of the Republic of Turkey (TCMB) included notable remarks regarding a mid-year minimum wage hike in its first Inflation Report of 2024. The report stated that as the minimum wage increases, its impact on demand is becoming increasingly dominant.

The report included the following statements:

"While monetary and financial conditions are exerting a dampening effect on demand, they remain at an inflationary level as of the beginning of 2024. In this development, wage increases, which will be effective through the demand channel as well as the cost channel, particularly in the first quarter of the year, play a significant role. With the significant impact of updating the minimum wage twice a year in recent years, the demand effect of wage increases has become increasingly dominant.

In this direction, the fact that the minimum wage will be updated only once in 2024 will contribute to the effectiveness of monetary tightening in the second quarter of the year. In addition to wages, the monthly inflation rose in January due to the impact of items with time-dependent pricing, which is temporary and consistent with the forecasts in the previous Report. It is estimated that the aforementioned increase will slow down in February and thereafter, and that the main trend will converge to the values of the last quarter of 2023 in the first half of the year."

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