Colombia ups the minimum wage by 5.8% amid inflation

Colombia said its annual minimum wage increase will be 5.8% for 2.012, the sharpest increase in four years and well above this year's 4% rise as higher inflation threatens to chip away at workers' purchasing power.

The percentage increase, announced by the government late thursday after meetings with labor unions and business leaders, will increase the monthly minimum wage by $16 to $293 a month starting Jan. 1.

Annual consumer inflation this year is likely to end just below 4%, up from 3.17% in 2010 and 2% in 2.009. 

The rising inflation is due largely to an increase in food prices after record rainfall in late 2.010 and throughout 2.011 destroyed highways, bridges and crops.

The 5.8% increase to the minimum wage, a level that is also the reference point for many other salaries and payments such as speeding tickets, is a tad high when compared with inflation rates. 

In recent years, the minimum wage increase was set at about 1 percentage point above the previous year's inflation, while the 2.012 increase will be nearly 2 percentage points above inflation.

But President Juan Manuel Santos explained in a statement that the government felt a "generous" minimum wage increase for workers was well deserved because the country's economy has done well this year despite an economic slowdown in other parts of the world. 

Colombia's economy could grow by as much as 6% in 2.011, fueled by booming oil and coal sectors and healthy consumer spending.

"This minimum wage deal was possible because it's been a positive year for the Colombian economy," Santos said. "

Prosperity has been generated, and this prosperity needs to be distributed to all Colombians."

Colombian economists warn that increasing the minimum wage by too much can feed even higher inflation. 

The Central Bank aims to keep annual inflation between 2% and 4%.