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JPMorgan Say Minimum Wage Resolution A Deterrent For Bolder Easing

COLOMBIA
  • After weeks of unfruitful negotiations, the government decided to increase the minimum wage (MW), the salary received by more than 2.5 million people, by 12.07%. For monetary policy, the government resolution in the MW appears as a deterrent for accelerating the easing pace by the end of this month, according to JPMorgan. Yet, they will wait for the December CPI print to reassess their monetary policy call.
  • Although the labor unions initially requested an increase of 18%, they later lowered their aspirations to 12%. When deflating by Dec-24 expected inflation, the real gain of the minimum wage would be similar to the one observed last year. Of note, the increase in the minimum wage not only has direct effects on workers' salaries but also serves to define the increase in many services and rates of different sectors.
  • The impact of the minimum wage on the next 12 month inflation is estimated in the 0.10-0.14% range. The overall impact depends on the phase of the business cycle, which currently sits at a crossroads.
  • JPMorgan revise Dec 24’ inflation higher to 5.2%. JPM had expected the MW to be set below 11% (10.6% was JPM’s point estimate). Therefore, the government decree for 12.07% adds about 16bp to the annual forecast. Of note, JPM have punished food prices on the assumption of a strong El Niño event, which so far has had a muted impact on wholesale fresh food. Thus, the projection for ex.food CPI stands at 5.3%oya by December.
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