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Goldman Sachs Expect Minimum Wage Hike to Add 4ppts to Inflation in Q1

TURKEY
  • Goldman Sachs write in a note that the monthly minimum wage hike of 49% for 2024, 9pp above their forecast, is likely to add to sequential inflation in Q1-2024. They say the pass-through from a 1% increase in the minimum wage to inflation is estimated to be around 0.1ppts, with most of the impact concentrated in the first three months; hence, the minimum wage increase will add close to 4ppts to inflation in Q1-2024, on their expectations.
  • However, GS think inflation will ultimately fall more sharply than expected. Inflation should mostly be driven by the growth rate of the money supply, with the output gap and external pressures of secondary importance. They say the main risk to their below consensus forecast is upside pressure on the monetary aggregates and the CBRT not being able to use rates and sterilisation tools to keep money growth at the level of Q4-2023.
  • With real rates back in positive territory and increasing signs from the CBRT that the Bank now feels comfortable with some real TRY appreciation, Goldman Sachs expect the rate of TRY depreciation to slow further inside the forwards through 2024.
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