Budget 2025: Any minimum wage increase unlikely to exert significant inflationary pressure - Economist

KUALA LUMPUR: The proposed minimum wage increase in Budget 2025 is unlikely to exert significant inflationary pressure within the current economic context, according to economist Prof. Emeritus Datuk Dr. Zakariah Abdul Rashid, who is also an Adjunct Professor at the Ungku Aziz Development Studies Centre, Universiti Malaya.

He made this statement ahead of the anticipated announcement of a new minimum wage tomorrow (18 October 2024), which is expected to replace the RM1,500 wage floor for private sector workers that has since expired.

Although minimum wage hikes are often linked to increased production costs, which can contribute to inflation, Zakariah emphasized that inflationary pressures resulting from the new MWO are likely to be minimal.

“The current inflationary trend is more driven by demand-pull inflation, a result of the global economic recovery, rather than cost-push inflation that might be caused by wage increases,” he said.

Additionally, he explained that domestic inflation is largely influenced by fluctuations in the Ringgit exchange rate, which has been strengthening recently. As such, the likelihood of significant inflationary pressure due to wage increases is not expected to be substantial.

Zakariah also stressed that worker productivity must improve alongside the minimum wage increase. Advancements in technology and worker skills are needed to ensure productivity growth aligns with the progressive wage policies that the government plans to introduce.

The National Minimum Wage initiative was first announced in the 2011 Budget presentation.

According to the Minimum Wage Act 732, minimum wage refers to the basic wage, excluding any allowances or other payments.

Key factors in determining the minimum wage include the poverty line income, productivity growth, and the consumer price index.

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