Turkey’s Erdogan finds a new way to fuel inflation

All policy paths in Turkey lead to inflation. President Tayyip Erdogan on Thursday announced a 50% hike in the monthly minimum wage to 4,250 lira ($275).

The Confederation of Progressive Trade Unions estimates that 10 million people, or around a third of the total labour force, earn that basic amount. The increase is designed to help voters, who have been hit by soaring prices.

But it will also further push up production costs. Annual producer price inflation already hit 55% in November. Companies will have no choice but to pass on some of the extra costs to customers, feeding inflation.

The steep rise in the minimum wage will also drag up other salaries, including those in the public sector, which employs around 5 million people. Extra state spending will put pressure on the budget deficit, which the finance ministry expects to be below 3.5% of GDP this year. At a time when the lira is slumping to new record lows, Turkey needs to build investors' confidence, not erode it. Jeopardising relatively sound public finances is not the way to do this.