Mexico Seeks to Boost 2021 Minimum Wage Far Above Inflation

(Bloomberg) -- Mexico is seeking to hike its minimum wage by far more than the inflation rate for a third consecutive year in 2021, under President Andres Manuel Lopez Obrador’s drive to reverse inequality in Latin America’s second-biggest economy.

Wages are set to climb from $187 per month to $215 next year, a nearly 15% increase, according to slides shown by Labor Minister Luisa Maria Alcalde in the president’s daily press conference Wednesday. Alcalde didn’t comment on the figures in the slides but two people familiar with the proposal said the increase is likely to be very near that figure after discussions with union and business leaders. The Labor Ministry declined to comment.

Lopez Obrador, who has promised to boost income and well-being for the nation’s poorest, said at the same press conference that wages needed to rise as much as possible. He has lifted the minimum wage by 16% in 2019 and by 20% this year. The country had traditionally kept increases barely above inflation to help keep costs down for exporters to the U.S.

The increases are formally agreed by Mexico’s minimum wage commission, known as Conasami.

MEXICO REACT: Lower November Inflation Provides Important Relief

Before Lopez Obrador took office, Mexico’s minimum wage was the second-lowest among more than 30 countries as a proportion of what an average worker made, according to a study by the Organisation for Economic Co-Operation and Development.

Despite the hikes, inflation slowed by more than 1 percentage point in Lopez Obrador’s first two years in office, including a period of volatility caused by the coronavirus pandemic. Consumer prices rose 3.33% in November from a year earlier, far less than the 4.09% jump seen in October, the national statistics institute said on its website Wednesday.

Mexico’s central bank, known as Banxico, paused a cycle of 11 consecutive interest rate cuts last month due to concerns about inflation.

With inflation expected to climb anyway in the coming months, the wage increase could give Banxico less room to restart easing, said Marco Oviedo, Chief Latin America Economist at Barclays. The bank “might delay any cut to evaluate the effect of that on inflation,” Oviedo said.

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