The Central Bank sees inflationary risks if the minimum wage increase turns out to be 'too high'

If the 2026 minimum wage increase turns out to be "as high" as the Government has suggested – Interior Minister Armando Benedetti spoke of reaching 1.8 million pesos per month – it could generate greater inflationary pressures.

This is the warning issued by the Central Bank in its minutes, which indicate that, should this scenario materialize, the credibility of the Central Bank, on which the inflation targeting scheme is based, could be affected.

“This would weaken a policy framework that has brought great benefits to the country throughout the century , including greater economic growth with price stability and the deepening of the financial market,” it reads.

At its last meeting, the Central Bank of Colombia decided by majority vote to maintain the monetary policy interest rate unchanged at 9.25 percent. While four directors voted in favor of this decision, two voted for a 50-basis-point reduction and one for a 25-basis-point cut.

According to the members of the majority group, the recent behavior of inflation and inflation expectations necessitates postponing any reduction in the interest rate until conditions arise that ensure the convergence of inflation towards the target within a reasonable timeframe.

The minutes also indicate that several members noted that future increases in the interest rate could be considered if certain inflationary risks materialize, which, although not part of the central scenario, should not be underestimated.

In addition, they mention that other more specific risks could arise from the prices of food or regulated goods, such as natural gas, in a context of increasing dependence on gas imports for both industrial use and household consumption.

On the other hand, they mention the increase in domestic demand, which has been recorded and exceeds 4.0 percent annually. According to the minutes, this growth has been driven by increased public spending and a widening fiscal deficit, as well as by increased remittances from workers and high coffee prices.

“Given that domestic production has been insufficient to meet this increased demand, the economy’s external imbalance has been growing. This could raise the risk premium and reverse the exchange rate appreciation, with the consequent inflationary pressures,” they warn.