The future of the minimum wage in Turkey is currently being assessed as a possible sign that President Recep Tayyip Erdogan may back on populist economic policies and stick to his pledges to curb one of the highest inflation rates in the world.
The talks are due to begin in December, and Erdogan, who has the final decision, has previously dramatically increased the minimum wage to curry favor with voters suffering from a cost-of-living crisis, raising it by 49 percent this year.
This increase boosts domestic demand, making inflation difficult to control, which currently stands at 62%, and complicating the central bank’s target of reducing it to 38% this year and 14% by the end of 2025. More than a third of Turkey’s workforce receives the minimum wage.
However, since his re-election in 2023, Erdogan has appointed an economic team led by Finance Minister Mohamed Şimşek that focuses on more market-friendly policies. Central Bank Governor Fatih Karahan, who took office in February, raised interest rates to 50%.
Investors are hoping for a low wage increase for 2025 in line with the central bank’s expected inflation target.
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Inflation and wages
Deutsche Bank (ETR:DHLn) analysts Christian Vitoska Wigate Unai expect annual inflation to reach 42% and 23% for 2025, with price pressures likely to ease further next year. “This means an increase in the minimum wage by 25-30 percent, assuming only one increase for 2025, as was the case in 2024,” they said.
Maintaining a minimum wage increase in line with the central bank’s inflation expectations would be a signal to investors that the country is serious about controlling it.
“Any increase of more than 30 percent will make it difficult to achieve annual inflation expectations within the central bank’s path by the end of 2025,” Vitoska and Onai said. “An increase of nearly 25% could be ideal to support consumers’ purchasing power while at the same time reducing upward pressure on inflation,” they noted.
The dollar surpassed the 34 level against the lira for the first time ever, now rising 0.86% to 34.00 liras per dollar.
The euro is at 37.8 against the Turkish currency, up 0.3% on the day.
The gram of gold, denominated in the Turkish currency, is now at 2,732 liras, down 0.15%.
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