What Jumps Out : Election Economics

As we await the inflation data for October next week (est rising to 5.47%) the political and media debate this week has surrounded the minimum wage for 2026. It currently stands at $1,423,500 (US$360) + benefits having risen 9.5% from 2024. Over recent years it has outstripped inflation marginally, but this time around the proposed increase being discussed is anywhere between 12% & 26% according to some sources – the government is looking at the lower end. This is still out of all proportion of what is expected in terms of inflation in 2025 (5.28%) & 2026 (5.4%) but perhaps not unexpected.

We are six months away from the presidential elections and the government will perhaps look to reward their supporters with a new shiny salary. Whilst this may seem scandalous it is nothing new – the Duque administration agreed to a then-unheard of 10.1% increase as we headed into the 2022 elections.

But that doesn’t make it right. Petro has spent two years railing against the Banco de la República – Colombia for not reducing overnight rates at a faster rhythm – we are at 9.25% and we will be at the same level on New Year’s Eve according to Fedesarrollo. Pouring a 12% salary increase – which feeds into many other facets of Colombian life which are indexed to the same decision.

The economy is going very well and most indicators are heading in the right direction, however that domestic demand is already propping up inflation, driving imports and in turn the country’s deficit. An excessive minimum salary increase is a threat on two fronts. It will impact inflation as suppliers face higher costs and also further push that domestic demand – in an ideal world those on minimum wage would save those extra earnings, but Colombians aren’t built that way.

****All this is easy to say when you aren’t trying to live in a few dollars a month, but equally it needs to be said.***

Elsewhere, September exports from Departamento Administrativo Nacional de Estadística – DANE Colombia rose 11% to $4.6bn driven largely by agriculture. But there was an 11.7% decline (to 13.7mn) in oil barrels sold overseas. Import data in a week’s time will surely condemn us to another huge monthly deficit.

Aside that relatively quiet except for aged politicians desperately looking for an alliance in order to protect the elite from those who would perhaps question their role in Colombia.

Have a great end to the week.

Regards

Roops