President Gustavo Petro decreed a 23.8% increase in the minimum wage for 2026. The amount, which benefits 2.4 million employees in the country, remains at 2 million pesos per month, including transportation assistance for 249,095 pesos. A much greater increase than in 2022, 2023 and 2024, where it increased by 13%, 9% and 5% respectively. President Gustavo Petro made the announcement on Monday, explaining that this year’s increase “was carried out based on international living wage standards,” he said in a pre-recorded speech.
“The salary or family living income is not individual, because workers in general do not live alone,” said the president in his speech, accompanied by his Minister of Labor, Antonio Sanguino, and his youngest daughter, Antonella Petro. “A minimum wage that guarantees the family the bare minimum,” he added, which implies “reproducing with dignity.” The president says he has sought a formula for a family of three to four people, with one or two workers on average. Thus, he adds, he calculated with his minister the figure of two million. This is a figure much higher than what the country’s unions demanded, which was 16%.
From the point of view of the business world, Andi published in The inflationary risk indeed constitutes the most worrying context in the short term. Bancolombia expects inflation to end 2026 at 5%, outside the target range for the sixth consecutive year, and warns that each additional point of the minimum wage on inflation and productivity adds 0.06 points to price increases (CPI). But the adjustment has already been made and at the beginning of the year, the indexation of minimum prices in sectors such as services and rental is expected.
Just seven months after leaving presidential power, this is the last increase Petro will be able to decree with his signature, before the mid-year elections. This increase comes by decree after the failure of the tripartite dialogue which ended without agreement on December 15. The decision, presented as an act of social justice by the president, comes at a time when the economy is evolving between two opposing forces: the political necessity to protect purchasing power and the technical urgency to contain inflation and preserve fiscal stability. “This will increase employment because demand is increasing and therefore there will be more business,” Petro concluded his speech.
This scene does not occur in a vacuum and occurs as the Bank of the Republic maintains a contractionary policy to curb inflation, which remains stable at around 5%, or two percentage points above the target. Today, the monetary policy rate is 9.25%, and various analysts have warned that the tightness could reach more than 10% in 2026 if growing pressures intensify. A Bancolombia report shows that raising the minimum wage well above inflation and productivity would force the issuer to keep rates high for longer, delaying cuts and making credit more expensive for households and businesses.
Tension between the government and the central bank intensifies with the announcement of the new minimum wage. The attacks have been constant throughout the year and at the last meeting of 2025, the Minister of Finance, Germán Ávila (who sits on the Council that decides monetary policy), denied the reasoning of the director of the issuer, Leonardo Villar, to stick to the rate in force since April. During the press conference, in which Ávila also unexpectedly announced that she would declare a state of economic emergency, Villar looked very uncomfortable. But the Bank maintains its independence at a time when international markets are looking for signs of credibility amid strong budgetary pressure.
The economic analysis center ANIF agrees and warns that excessive real increases in the social minimum generate pressures in education, health, transport and personal care, sectors that are labor intensive. Recent experience confirms this: since 2015, the minimum wage has consistently increased above inflation and productivity, and this gap translates into higher prices and lowered expectations. The effect is not immediate, but it accumulates and, in the long term, erodes the very purchasing power it seeks to protect.
Added to this equation is the very compromised budgetary front. Bancolombia forecasts a national central government deficit of 6.5% of GDP in 2026 and a public debt of 63.4%. The increase in the social minimum adds pressure on public salaries and interest payments, in a year marked by budget delays and spending rigidities. The State not only faces higher labor costs, but must finance it in a market where the TES curve remains high, which makes emissions more expensive and prolongs the fragility of budgetary accounts. Everything is happening while the debt management strategy of Javier Cuéllar, director of Public Credit, tries to contain the deterioration, but with a margin that shrinks with each decision that increases structural spending.
The job market, with unemployment rates at historic lows, is not without risk either. Bancolombia predicts that the unemployment rate will remain in the single digits, around 9%, and that informality will represent around 55% of the labor market. ANIF warns that the gradual reduction of the working day – after the approval this year of the labor reform – is already making the hour worked more expensive; and that adding a sharp increase in the minimum raises the threshold for entry into formality, leading businesses towards informality. Sectors such as trade, accommodation and food, which are labor intensive and dependent on demand, are most exposed to this cost shock.
The decree is celebrated by many workers, but the market and issuer will read it with caution. Today’s high minimum wage may lead to more inflation tomorrow. The question is whether the country will be able to maintain the balance between immediate well-being and macroeconomic stability, in a scenario where each additional point of increase becomes a challenge to the monetary policy, fiscal discipline and economic credibility of the coffee-producing country.
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