The growth of the minimum wage and household consumption in 2025 will not exceed these figures: the expert explained the situation

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Colombian household consumption shows negative figures for 22 months - credit Canva
Colombian household consumption shows negative figures for 22 months – credit Canva

In August 2024, household spending as measured by Radar Gastometry was $86.5 trillion. In August 2023, household spending was $82.4 trillion, up 4.92% in current terms, up from 4.68% in the previous month. However, in real terms, spending growth was -1.13% year-on-year, representing five months of the new adjustment or 22 months from November 2022.

This decrease responds to the deterioration of real wages of employed people, where informal workers and subsequently those with the largest participation in the Colombian labor market were the most affected.

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Now, this month, there has been a change in the year-on-year trend, which again shows signs of recovery for the second part of the year, due to A decrease in interest rates can also benefit the use of credit and, with it, spending.

Also worth noting is the behavior that remittances register; However, this number should be revised regionally, as the coffee region and Valle del Cauca are where it could have the greatest impact.

in addition The August figure continues to show an adjustment in household spending, which again shows a change in trend.

In this regard, the founder of Raddar, Camilo Herrera Mora, who is also a researcher, analyst, consultant, essayist and lecturer, spoke to Infobae Colombia and clarified many doubts about what is happening and what is the economic future of Colombia in the country. the face of these indicators. Among other thingshe said that the economic decisions of President Gustav Petr have little to do with the uncertainty the country is experiencing.

Why has household spending been in the red for several months?

That spending has been falling for several months is due to three main reasons: spending increased significantly between 2021-2023; inflation and interest rates are high and due to low real wage growth.

How much of the blame are Gustav Petr’s economic decisions for the decline in consumption?

Not much, really. What’s more, a blanket of uncertainty that keeps people from thinking about applying for housing investment loans and less job creation.

However, the 2022 tax reform had two big blows: an increase in the withholding tax at source and income and the health tax. Both take away purchasing power from households.

Is this drop in spending causing unemployment? Pin?

It may happen, but it is not very clear, because it depends on industry and trade slowing down and not generating jobs. It’s not entirely clear either.

If inflation and interest rates have moderated in the last year, why is this not yet reflected in consumption?

This may be because rates are still high compared to what they were in 2019 (4.25%). When we reach these levels, there may be more credit dynamics in households.

The interest rate Bank of the Republic charges financial entities for the liquidity it provides through open market operations is 10.75% - Credit Jaime Saldarriaga/Reuters
The interest rate Bank of the Republic charges financial entities for the liquidity it provides through open market operations is 10.75% – Credit Jaime Saldarriaga/Reuters

Given the current situation of uncertainty, what should Colombians prioritize their daily, weekly or monthly spending?

Ideally, the first expense is savings and the second is debt. Then let it be the most common third and then enjoy it, although many do the opposite.

How does consumption affect gross domestic product (GDP) growth?

Consumption increases GDP dynamics. GDP is the sum of many economic sectors and, on the demand side, household spending. Public spending and exports are rising, but imports and investment are falling.

I would think that household spending will grow less than GDP for a while.

Does the Russian-Ukrainian war still have consequences for the Colombian economy?

This issue is complex because it affects the market for food and agricultural inputs. Although there has not yet been a settlement, the huge dependence we have on Ukraine, especially for products such as urea, has shown.

This keeps the price of many foods higher than they should be.

What is the forecast for household consumption in 2025?

We hope that tailwinds in the economy will further boost spending. We expect growth in general across all categories. It’s like households returning to spending.

The Radar bin predicts it could be between 1.3% and 2%.

Minimum wage for 2024 in Colombia remained at $1,300,000, after a 12% increase compared to 2023, when it was $1,140,000 - credit Luisa González
Minimum wage for 2024 in Colombia remained at $1,300,000, after a 12% increase compared to 2023, when it was $1,140,000 – credit Luisa González

Looking ahead to 2025, how much should the minimum wage increase next year to improve purchasing power?

There are many problems regarding the minimum wage, as only 18% of the employed population is connected to this indicator due to high informality. And it is not true that all salaries grow equally. So we expect an increase of between 7 and 8%.

How has the high price of the dollar affected household consumption and what might happen if the currency continued above $4000?

Not much at this point because we’ve been there for a while. About 14% of our spending is on imported goods. If it goes up a lot, it might affect us.



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