The big boost will help bring the minimum wage in line with a so-called “living wage” that would allow families to afford a basic basket of goods, the leftist Petro explained Monday night in a televised speech to the nation. The monthly base salary including transport will rise to 2 million pesos (around US$530) in 2026.

“These are measures that will directly reduce poverty,” said Petro, whose four-year term ends next August.

Last month, central bank co-director Mauricio Villamizar warned that a large increase in the wage was among the inflation risks that might force policymakers to hike borrowing costs.

It follows the 9.5% rise to the minimum wage enacted last year, as well as a labor reform bill passed this year that expands overtime pay for workers.

The real increase is more than 18 percentage points above the inflation forecast for 2025. The government imposed the wage hike after business leaders and labor unions failed to reach an agreement.

The boost announced by Petro is nonetheless higher than the around 7% increase business groups preferred, and also bigger than the 16% unions had sought.

Two- and five-year interest-rate swaps jumped and yields on local peso bonds rose following local media reports on the planned increase earlier on Monday. Yields on local bonds with maturities in 2036 rose 34 basis points after the reports.

The wage jump could push inflation to accelerate past 6% by the end of next year, according to Camilo Perez, chief economist at Banco de Bogotá. Not only will the move lead the central bank to raise its key rate starting in January, but it may do so with half a percentage point increases, he said.

Colombia’s unemployment rate fell to 8.2% in October, from 9.1% a year earlier.

Economists in the latest central bank survey expect inflation to end this year at 5.19%, and then tick down to 4.59% by the end of 2026, which would mark the sixth consecutive year the bank misses its 3% target.