• Government and teachers unions reach agreement on wage rise
  • Increase was above government's initial target of 25%

Argentina’s government agreed to raise state teachers’ salaries by an average of 32 percent, paving the way for broader wage negotiations across the country this year.

State teachers will see their basic monthly salaries rise to 7,800 pesos ($505) from 6,060 pesos effective immediately, with a further increase to 8,500 pesos starting in July, according to an e-mailed statement from the presidency.

By reaching an agreement with the powerful teachers’ union in less than one month of talks, President Mauricio Macri managed to avoid a potential delay in the start of the school year on Monday. The wage concession, however, means Macri is unlikely to meet his inflation target, said Lucian Cohan, chief economist at Buenos Aires-based economic consultancy Elypsis.

The agreement with teachers “is a reference and it makes it difficult to imagine other wage increases in the coming weeks being agreed at 25 percent,” Cohan said.

Macri, who took office in December following 12 years of rule by former President Cristina Fernandez de Kirchner and her late husband, had sought to limit wage increases to 25 percent after his government set out an aim to tame inflation to 20 percent by the end of the year.

The government was limited in its bargaining power by the timing of the negotiations, coming shortly after it lifted currency controls and allowed the peso to float freely in January, causing it to devalue by about 30 percent. Macri is also trying to cut subsidies on utility bills applied by the previous government as he seeks to close a fiscal deficit of 5.8 percent of GDP, which he says is the largest in 30 years.

The president may have more success in salary talks in other sectors once the economy has digested the inevitable inflation spike generated by the measures, Cohan said.

“What the government needs to achieve is that these negotiations look at future inflation rather than the past,” Cohan said.

Inflation quickened in January as prices rose 4.1 percent from December, according to an index published by the city of Buenos Aires. Annual inflation accelerated to 29.6 percent.

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