Bloomberg Línea — Latin America’s minimum-wage earners have been affected by the economic challenges the region has faced during 2022: problems in the global supply chain, increased demand for goods and services, Russia’s war in Ukraine, and a rapid advance of inflation in most economies.
By June 2022, according to a document from the Economic Commission for Latin America and the Caribbean’s (ECLAC) Keys to Development report, inflation in Latin America had averaged 8.4%, more than double the average recorded in the region from 2005 to 2019.
Thus, minimum wages in the countries have been losing their purchasing power, although some still outpace accumulated inflation, if the percentage increase made by governments at the beginning of the year or during the year is taken into account.
Bloomberg Línea analyzed the ‘race’ between the minimum wage in each country and cumulative inflation between January and September 2022, revealing that in eight countries wages still have some resistance to prices (as a percentage), while in six countries inflation has already devoured the increase in wages, excluding Argentina and Venezuela.
Wages losing out to inflation
Costa Rica is the country where the minimum wage increase for 2022 has lost the highest percentage against accumulated inflation to September. There the salary went from $514 (using the Oct. 31 exchange rate) to $524, an increase of 2.09%, while inflation up to the ninth month of the year stood at 8.41%.
Below that is Honduras, where the minimum wage increase of 5.32% has been overshadowed by an accumulated inflation of 7.63%, which is similar to what has occurred in the Dominican Republic, where the accumulated inflation of 6.01% up to September has already consumed the 5.26% increase in the minimum wage for 2022.
Meanwhile, in Uruguay and Panama, until September inflation had advanced more than the increase in the minimum wage. In the former, an 8% increase was made and inflation up to the ninth month totaled 8.65%, and in the latter, the 1.24% increase was already offset by an accumulated inflation of 1.74%.
Colombia also showed similar behavior, since to September, cumulative inflation in 2022 was practically equal to the increase in the minimum wage for this year (10.08% compared to a wage increase of 10.07%).
In El Salvador, no adjustment in the minimum wage for 2022 has been made so far, while cumulative inflation to September was 5.72% in the country.
“High inflation has impacted real incomes and the effects on private consumption have already been observed in some countries as of the second half of this year,” ECLAC said in mid-October at the publication of its Economic Studies for Latin America report, in which it estimated GDP growth in 2022 of 3.2%, but lowered its projection for 2023 to 1.4%.
The countries ahead of inflation
Other countries in the region still have minimum wages that resist consumer price shocks and where the increases implemented in 2022 are still higher than cumulative inflation.
Where wages have covered the most against inflation is in Mexico, at least in percentage terms, as there the increase for 2022 was 22%, taking the wage from $217 to $265), while cumulative inflation was 6.2% through September.
The outlook is also positive in Brazil and Chile. In the former, the salary increase was 10.18% and inflation through September was 4.09%, and in the latter, the salary increase effective in August sheltered Chileans from the high inflation that the country is experiencing, with a wage hike of 18.69%, compared to a cumulative inflation of 10.8%.
Paraguay (an 11.4% increase compared to 7.1% cumulative inflation), Peru (a 10.22% wage hike compared to 6.68%) and Guatemala (14.45% compared to 7.93%) also fall into this group, as inflation has not yet devoured the increases made by governments to the minimum wage.
In Ecuador, which is a dollarized economy, salaries continue to resist inflation, as the increase almost doubled the accumulated inflation, with a 6.25% wage hike compared to 3.46% to September.
Bolivia is also in this group, as accumulated inflation there is only 1.76%, compared to an effective wage increase of 3.97% for this year.
Argentina and Venezuela
These two countries have the two highest inflation rates in the region so far in 2022, both year-on-year and cumulative through September.
In the case of Argentina, the minimum wage has been increased on several occasions during the year, to stand in August at $305 (up from $203 previously), and in September it was raised to $326), with more increases promised for November.
To September, year-to-date inflation in Argentina reached 66.1%, while salaries had advanced 60.31% between January and September.
Luis Campos, coordinator of the Observatory of Social Rights of Argentina’s Workers’ Trade Union (CTA), pointed out that the minimum salary in 2022 will increase by 75.5% to November, “but by then the (inter-annual) inflation projection is close to 90% (...) in fact, currently the minimum wage is around 30% below inflation in real terms compared to the end of 2015″, he told Bloomberg Línea.
Meanwhile, the situation in Venezuela, although similar due to high inflation rates, is much more stark, as cumulative inflation to September was 111.8% and although the minimum wage increase announced by President Nicolás Maduro was 1,263% in March, the defined monthly income is still the lowest in the entire region and is nowhere near the regional average.
Currently, Venezuela’s minimum wage is half a petro (the local cryptocurrency), which is equivalent to $30, meaning that it is below the new extreme poverty threshold defined by the World Bank, which stood at $2.15 per day this year.