Brazil's centre-left government has offered workers an inflation-busting 20% rise in the minimum wage beginning from Tuesday.
Lula is seeking to increase wages
President Luiz Inacio Lula da Silva and his Workers'
Party (PT) promised during last October's elections to double the minimum wage within four years.
The monthly minimum wage has been increased by more than the 15.9% inflation recorded for the 12 months to February to 240 reals (£45; $71).
But the increase will cause further inflationary pressures.
A recent review of the International Monetary Fund's $30bn loan to Brazil has set an inflation ceiling of 17.5% for the 12 months to September, up from a previous target of 9.5%
Last week, metalworkers in Sao Paulo state went on strike, marking the first large labour dispute to confront Mr da Silva since he took office on 1 January.
Forca Sindical, one of Brazil's two leading union confederations, which represents the metalworkers called for a 10% pay rise to compensate for inflation.
Brazil's central bank predicted on Monday that inflation would hit 10.8% in 2003 - up from the previous 9.5% estimate - and fall to 4.1% in 2004.
The bank has raised interest rates five consecutive times to 26.5% to reign in inflation, caused by last year's currency devaluation and high energy prices.
The high interest rate is blamed for rising unemployment, which in February rose by 0.4 points to 11.6%.
The minimum wage applies mainly to civil servants in Brazil and has a significant impact on state finances because pensions are also indexed to it.
"Everyone knows that the president would like to allow a
greater increase, but budgetary restraints don't permit (it
presently)," said presidential spokesman Andre Singer.
He added it would cost the government an extra 1bn reals a year.
"That is not an ideal value, but it is what was possible at
this moment," said Paulo Pereira da Silva, head of the Forca Sindical union of industrial workers.
"We are satisfied because we know that the government is committed to doubling the minimum salary in four years."
The minimum wage is largely ignored by the private sector.
A third of Brazil's 176 million people live in poverty.