(Bloomberg) -- Mexico will increase the minimum wage by 20% starting on Jan. 1, President Andres Manuel Lopez Obrador announced Friday, pressing on with a popular policy among his working class base ahead of June’s presidential election.
The hike will mean the minimum salary has doubled in real terms since the start of Lopez Obrador’s term in late 2018. Mexican workers’ daily minimum wage will be 249 pesos ($14.4), or 7,508 pesos per month, the president said at his daily press conference.
“This is historic,” AMLO, as the president is known, said. “We will fulfill what we offered at the beginning of our government.”
Mexico has been boosting the minimum wage, which is set by an agreement between the government, unions and company representatives, by double digits in Lopez Obrador’s five years in power.
The move “highlights the electoral cycle that we are currently in and how popular these policies can be,” Rodolfo Ramos, a strategist at Bradesco BBI, wrote in a note. “For future years, minimum wage policy will depend to a great extent on the outcome of the election, but regardless of who wins, we expect to continue to see large real increases to the minimum wage.”
The policy has helped sustain local demand but at the same time is a factor that complicates the central bank’s task of bringing inflation down to its 3% target, plus-minus one percentage point. The country posted 4.3% inflation in the first half of November, compared to the same period a year earlier, up from 4.25% in late October.
“This could reinforce the high persistence we have seen in core inflation, putting a limit on how much this could keep falling next year,” said Jessica Roldan, chief economist at Finamex Casa de Bolsa, referring to a closely watched inflation metric that strips out volatile prices like fuel. “We estimate that will end up very close to 4% at the end of 2024.”
Read More: Banxico Chief Sees Chance of Rate Cut in Early 2024 Amid Split
Mexico will hold presidential elections in 2024 in a race that has his party’s candidate Claudia Sheinbaum as frontrunner. The president is not allowed to run for reelection after finishing a single six-year term.
(Adds analyst comments from fifth paragraph)
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