Turkey has hiked its net minimum wage by 30% to Turkish lira (TRY) 22,104 ($627) effective as of January 1, 2025, labour minister Vedat Isikhan said on December 24.

The cost of the minimum wage to the employer, when taxes and social security premiums are added, has risen by 27% to TRY 29,878 from TRY 23,503.

The USD sum may seem big. However, it should be taken into account that Turkey has lately become one of the most expensive countries in Europe. The country's "orthodox" economy officials have been limiting lira depreciation in their fight against inflation, while inertia keeps inflation high.

For November, the Turkish Statistical Institute (TUIK, or TurkStat) said that Turkey’s consumer price index (CPI) inflation officially stood at 47.1% y/y.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 87% y/y for November.

For end-2025, the central bank is targeting official inflation of 21-26%.

As of December 26, the USD/TRY rate was up 21% y/y.

Turks in their usual fury

Turks are in their usual fury. Half of the workforce in the country earns the minimum wage. The yellow labour union Turk-Is did not participate in the press conference at which Isikhan announced the level of the increase.

The fury will lose steam if regime police sweep up any handful of people who dare to mount a street protest.

Under normal conditions, the president, Recep Tayyip Erdogan, would add a few thousand lira as a final touch (as if he was paying it from his own pocket). However, he is currently under pressure from the financial markets. He may well skip the "sultan’s bonus" this year.

Turkey’s hunger threshold, representing the required minimum monthly food expenditure for a four-person family, stood at TRY 20,562 ($584), up 47% y/y, in November, according to the monthly survey conducted by Turk-Is.

The poverty threshold for a four-person household, meanwhile, stood at TRY 66,976 per month. The minimum cost of living for a single person was TRY 26,712.

Finance industry okay with 30%

In January, S&P Global Ratings said a 30% minimum wage hike should be delivered for 2025.

According to Haluk Burumcekci (@burumcekci) of Burumcekci Consulting, the impact of the 30% hike on annual headline inflation will be less than 1%.

The central bank currently holds a stronger hand for rate cuts, Burumcekci also noted.

Thus, the finance industry was okay with the level of the wage hike.

Wage-price spiral

Due to Turkey's hyperinflationary environment, minimum wage hikes had to be delivered twice in 2022 and 2023. In 2024, however, the Erdogan administration opted against a second hike.

Since 2022, Turkey has been in a price-wage spiral, although wage hikes have remained below both the official and actual inflation figures.

The minimum wage stood at TRY 2,826 at end-2021.

Effective as of January 2024, the minimum wage was hiked by 49% to TRY 17,002.

The new economic “orthodoxy” greenlit by Erdogan means that the bill for breaking out of the spiral must be delivered to wage earners.

It is written in the text books that demand should be curbed in order to fight against inflation. The problem with such economic theories is that they are written for large open economies, most particularly that of the US.

A large open economy has a hard currency and its monetary policies have global impact.

Turkey is a small open economy. The country’s inflation is always cost-side, generally due to currency depreciation. Wage increases follow price increases.

Despite the ongoing impacts of inertial inflation, the pace of price increases is declining in parallel with declining lira devaluation rates.