INFLATION fuelled by the new minimum wage will largely vary from industry to industry with different labour needs, the Socio-Economic Research Centre (SERC) said.

“Different industries will have different labour costs,” SERC executive director Lee Heng Guie told The Malaysian Insight.

The services industry, as the most labour-intensive, could see costs go up as high as 20-30% and is hence more likely to increase prices compared to others, he said.

“The same goes for construction. But it may not be the same for the manufacturing sector, which has a higher degree of automation,” said Lee.

Lee said that the timing and sudden adjustment of minimum wage from RM1,200 to RM1,500 per month, effective May 1, is unfortunate. Employers with fewer than five workers are, however, exempt from the law.

“Ordinarily, businesses will be able to absorb some amount of wage hikes, and some may decide not to pass on this extra burden to consumers. 

“But as businesses are also facing higher costs of raw materials (caused by inadequate supply), weakening exchange rate, higher energy costs and inadequate foreign labour supply, many will have no choice but to pass on these costs to the consumer,” said Lee.

One example of the lack of raw materials is the shortage of timber from Russia after it began its Ukraine invasion.

Because of the timber shortage, the price of toilet paper is expected to increase, said Lee. 

Staggered wage increase

The government should have staggered the minimum wage increase in stages before ending at RM1,500 at the end of the year, said Lee.

“This would allow the market to gradually absorb the costs rather than face it all at once.”

Mydin managing director Ameer Ali Mydin has said a gradual increase of the minimum wage would have given companies time to adjust.

Ameer also said his hypermarket chain will see a RM22 million hike in its payroll  following the minimum wage hike.

Interest rate

Yesterday, Bank Negara Malaysia (BNM) raised the overnight policy rate (OPR) by 25 basis points to 2% at its third monetary policy committee meeting of the year.

Economist Lee said this will help to reduce inflationary pressure.

“As inflation is caused by inadequate supply and costs, it would be good if BNM could increase interest rates to slow down inflation and demand,” said Lee. 

He said while this will not resolve the supply issue, it will at least slow down demand-fuelled inflation. 

“And in the meantime, the government will get some breathing space to resolve the foreign labour shortage,” he added.

BNM said the higher OPR was in response to inflationary pressures which are higher due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US. 

For 2022, the central bank projected headline inflation for Malaysia to average 2.2-3.2%, and core inflation to average 2-3%.

“The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices,” BNM said. – May 13, 2022.