Fernández mandates private-sector wage increase
In a press conference the labour minister, Claudio Moroni, explained that the wage increment would have to be paid in two tranches—one of Ps3,000 in January and the other of Ps1,000 in February. Mr Moroni also clarified that the mandated wage increase did not seek to circumvent the usual collective bargaining process, but instead provides a floor for salaries in negotiations between labour unions and employers. The minister also announced that micro, small and medium-sized enterprises will be exempt from paying employer social-security contributions on this increment for the next three months. Finally, Mr Moroni stated that the government was in the process of drafting a similar decree to raise wages of public-sector employees, which will be published in the next few days.
The policy move is unsurprising, given that boosting consumption was one of Mr Fernández's main campaign promises. In the current economic context, scope for faster employment growth in the near term is limited. Therefore, a boost to consumption would necessarily have to come from higher wages. The latter, however, will provide only a modest respite to real consumption—owing to persistently high levels of inflation.
According to the latest data from the Instituto Nacional de Estadística y Censos (INDEC, the national statistics institute), nominal wages grew by 41.5% year on year in October, below the annual inflation rate of 50.1% for that month. Insofar as the mandated salary rises contribute to the wage-price spiral (in which higher wages and higher prices reinforce each other in a vicious cycle), their overall effectiveness in boosting workers' purchasing power will be limited. Recognising this fact, the president called on labour unions to avoid making "excessive requests" in forthcoming collective bargaining rounds, while also asking businesses not to transfer higher wage costs to higher prices for their goods and services. It is likely that Mr Fernández's statements are setting the stage for long-promised tripartite negotiations, with business and unions to enter a "social agreement" to contain inflation. We expect the agreement to have only a modest impact on inflation, amid unanchored inflation expectations and looser monetary policy.
Impact on the forecast
The developments are broadly in line with our consumption and inflation forecasts, which remain unchanged.