Mexico to increase minimum wage by 20% in 2023, fueling concerns of inflation 

Mexico plans to raise the minimum wage by 20% in 2023 after reaching an agreement between employers, labor representatives, and the government, officials said on Thursday. 

Beginning on January 1, 2023, the standard minimum wage will increase from 172.87 pesos ($9.03) to 207 ($10.82) a day, Labor Minister Luisa Maria Alcalde said at a news conference. 

The wage increase will be higher for workers along the U.S.-Mexico border, who will be paid 312 pesos a day compared to the current 260. 

The government calculated the minimum wage increase by taking into account inflation, President Andres Manuel Lopez Obrador told reporters. However, many believe that the president was downplaying the risks of inflation, which ran at an average of about 9% this year. 

"We don't see any risk of inflation shooting up," said the president. 

To deal with Mexico’s high inflation rates, the Bank of Mexico has increased its key interest rate by 600 basis points since mid-2021 to 10%. 

According to economist Gabriela Siller at Banco BASE, there are three reasons why the wage increase might exert further pressure on inflation. 

"One, this is a very sharp increase; two, it's not accompanied by gains in productivity; and three, we've had several years running with strong minimum wage increases," Siller said.

In an attempt to close Mexico’s income disparity, the Lopez Obrador administration has conducted double-digit percent raises every year since he took office in 2018. The wage increased by 16% in 2019, 20% in 2020, 15% in 2021, and 22% in 2022. 

Around 6.4 million workers are expected to benefit from the wage increase—about one-third of the country's formal workforce.