Mexico to raise base wage, new leader pledges more hikes to come

Mexico’s wage commission said on Monday it planned to hike the country’s minimum wage by 16 percent to around $5 a day and new President Andres Manuel Lopez Obrador pledged further rises to keep up with inflation.

The $0.71-a-day raise, the biggest in percentage terms since 1996, followed two hikes of around 10 percent by the previous government also aimed at boosting the purchasing power of low-income workers.

Persistently low salaries for many Mexicans stoked the frustration that led to the landslide election of leftist Lopez Obrador, who has pledged to raise living standards to reduce crime and discourage migration to the United States.

“During many years the minimum wage has lost its purchasing power. Some say it has lost 70 percent of its purchasing power over the last 30 years,” said Lopez Obrador, who took office on Dec. 1.

“We’re never going to have wage (increases) below inflation,” he pledged at an event with the wage commission, made up of government, business and labor representatives.

Mexico’s annual inflation rate is running around 4.7 percent, above the central bank’s 3 percent target.

One of the main issues U.S. President Donald Trump had with the U.S.-Canada-Mexico North American Free Trade Agreement was Mexico’s lower comparative wages, which help Mexico to attract foreign companies and create jobs but also encourage migration to the United States.

A reworked version of the pact signed in November includes provisions to reduce the wage gap, including a pledge from Mexico to lift auto worker wages and to reform labor laws that have weakened independent unions.

The wage commission said the daily minimum wage would rise to 102.68 pesos from 88.36 pesos on Jan. 1.

But the Mexican employers’ confederation Coparmex said in a statement that within 25 kilometers (16 miles) of the U.S. border, the minimum will be increased to 176.72 pesos.

Lopez Obrador has called for doubling the minimum wage in northern states close to the United States.

Markets welcomed Lopez Obrador’s maiden budget, delivered on Saturday, for pledging to stick to fiscal discipline. But the wage policy has raised concerns about its effect on prices and interest rates.

Minimum wage increases have so far not put upward pressure on wage demands overall, but the central bank warned last month that indexing wages to inflation could lead to an upward price spiral.

Benito Berber, chief economist for Latin America at Natixis, said the policy could push the central bank to raise interest rates on Thursday.

“It seems the government is willing to accept higher inflation and perhaps stickier inflation,” Berber said. “Banxico has been clear that wage increases above productivity would entail tight monetary policy.”

Puerto Vallarta News

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