Economics: Wage hikes and pending and potential labor reforms heighten labor cost pressures following a slight 4Q inflation rebound
Consumer inflation concluded December 2023 with a slight rebound above levels of the previous few months, but at 4.66% it was considerably lower than the 7.82% year-end rate of 2022. Core inflation (5.09%) continued to outpace headline inflation, pressured higher by core services (5.33%), and food, beverages and tobacco (6.25%). In this inflation context, President López Obrador announced his intention to send two legal reforms to Congress related to the labor market that address minimum wages and workers' pensions.
The minimum wage has increased by more than 130% in real terms in the past five years, a policy that has obviously benefited minimum wage earners directly and has indirectly boosted the earned income of higher wage strata. This cumulative wage growth has translated into heightened pressures on company costs that could erode their competitiveness in the coming year, especially considering other factors that could impact their labor costs, such as last year’s reform of the Federal Labor Law that essentially increases employee vacations from a maximum of 10 to 20 days, depending on seniority, as well as the initiative that is still in Congress that proposes to reduce the work week from the current 48 hours to 40. The vacation reform and reduction of the working day could increase labor costs by between 15% and 30%, according to estimates by private sector organizations.
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