Minimum wage policy may impact inflation
KUALA LUMPUR: Inflation pressures are expected to rise once the new minimum wage policy comes into effect, says Standard Chartered Bank.
A minimum wage can lead to an increase in supply costs (overall wage levels) for businesses, which are passed on to consumers.
It can also lead to higher wage levels for both minimum wage workers and others, which increase demand for goods and lead to higher inflation expectations.
The government's plan to implement a minimum wage, suggested at RM800-900 per month, may also be imminent.
"Given that a considerable 34 per cent of the workforce earns under RM700 per month, implementing a minimum wage would add to inflation expectations," it said in a note yesterday.
The inflation level has eased over the months and the government's administered price scheme will help to insulate the economy from higher global oil prices and the base effect will also help.
With the rise in inflation expectations, StanChart says Bank Negara Malaysia will keep its policy rate unchanged at three per cent this year.
On the minimum wage, it is said that the new wage policy could affect up to 3.8 million workers.
StanChart said it is possible that the government impose different wage levels in each state to account for the differences in salary scales.
Using the lowest daily wages of general construction workers across states (assuming 20 working days per month), it estimated that monthly salaries vary between RM800 and RM1,400.
The Malaysian Employers Federation has warned that around 200,000 small-time employers could close due to the potential increase in staff costs.
"Implementation of the new wage also will likely be gradually phased in to soften its impact and to allow time for companies to adjust and improve productivity, given the potential impact on business costs, particularly for smaller companies.
"This should help to moderate the immediate impact on inflation, from both demand-pull and supply-push views,"it added.
On the upside for inflation, given the generally firm domestic economy and tight labour market, the transmission to general wage levels may be faster, which will increase business costs.
The current unemployment level in Malaysia is low, it said, and this will moderate any impact on labour substitution.
"The pass-through of higher wages to general price levels could be tempered over the next few quarters, given the base effect and broader environment of moderating (albeit resilient) growth."
There is no need for Bank Negara to hike rates yet, but the risk that Bank Negara will maintain its current monetary policy stance has increased.
Source : New Straits Times
Date : 16 March 2012
afternoon highlight (16/03/12/049/524)
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