Balancing minimum wage and cost of living
The cost of living is rising. As developments advance across the world, global market trends fluctuate, unpredictable movements of currencies occur in major economies and its partners, and many other inflation factors, the cost of living is undeniably on the rise.
What may cost RM1 five years ago, might now amount to RM5 or even RM10. A RM800 minimum wage five years ago, is now probably not enough for a single adult to afford a comfortable standard of living.
While Malaysia’s consumer price index (CPI) saw only a three to 3.7 per cent increase for the last few years, Malaysia’s CPI has been on gradual rise for the last 10 years.
Bank Negara Malaysia (BNM) also reported that Malaysia’s headline inflation increased to 3.7 per cent in 2017 (as compared to 2.1 per cent in 2016).
“Inflation remained volatile during the year and was primarily driven by higher domestic fuel prices. Higher global commodity prices and disruptions in domestic food supplies also contributed to the higher inflation.
“This, however, was mitigated by the stronger ringgit exchange rate since April 2017, which helped contain the rise in production costs for domestic goods. Core inflation was also higher in 2017, averaging at 2.3 per cent for the year (compared with 2.1 per cent in 2016),” it said.
Nevertheless, it pointed out that demand-driven inflationary pressures remained largely stable given the lack of persistent tightness in capital stock and the absence of significant wage pressures.
Consumer sentiments had also taken a beating from the rise in the cost of living.
Malaysia’s consumer sentiments index ( CSI), which indicates Malaysians consumer spendings or Malaysians willingness to spend saw a rise of 8.4 points quarter-on-quarter (q-o-q) for the first quarter of 2018 (1Q18) but it still remains below 100-point optimism threshold.
Malaysia Institute of Economic Research (MIER), in its CSI 1Q18 announcement, it pointed out that Malaysia’s current household incomes are steady while job and financial expectations improve.
However, there are concerns over rising prices moderating. Hence, it believed that consumer spendings or shopping plans have weakened during 1Q.
According to the latest The Conference Board Global Consumer Confidence Survey, in collaboration with Nielsen (formerly known as the Nielsen Global Survey of Consumer Confidence and Spending Intentions report), while the confidence level in Malaysia remained steady last year, it climbed two spots to be the 30th most confident country globally in the quarter.
It noted that the Malaysia consumer confidence index remained stable in the fourth quarter of 2017 at 94 percentage points (pp), up one point from the previous quarter and up 10 points compared to 4Q16,
“The consumer confidence level for Malaysia has been largely flat for the third quarter in a row. While it remains below the neutral threshold, Malaysian consumers are more confident than they were this time last year,” said Raphael Pereda, Nielsen Malaysia’s managing director.
The report also pointed out that despite positive economic indicators such as GDP growth, positive FMCG growth and improvements in consumer spending compared to 2016, recessionary sentiments among Malaysians remained high, with 80 per cent of respondents saying that they believed the country was experiencing a recession (down five per cent compared to 85 per cent in 4Q16).
Even if economic conditions improve, close to a third of respondents said that they will continue to spend less on new clothes (37 per cent) and that they will continue to save on out-of-home entertainment (28 per cent).
“Malaysians, like their peers in Southeast Asia, have historically been prudent spenders and they continue to be mindful of discretionary spending, while placing more emphasis on building a financial nest for the future,” said Pereda.
As the cost of living rises, one way to elevate this pressure and improve consumer sentiments to further drive private consumption in Malaysia is to raise the people’s source of income.
Bank Negara Malaysia (BNM) has called for the citizens to aspire to attain an acceptable living wage level as Malaysia heads to becoming a high-income nation.
“Since 2014, the incomes of the bottom 40 per cent (B40) of households expanded by 5.8 per cent on an annual basis, equivalent to RM156 per month.”
“However, expenditures grew at a faster pace of six per cent, or RM120 per month, which leaves the B40 with little money to spend,” BNM Governor Tan Sri Muhammad Ibrahim told a media briefing after the release of the BNM Financial Stability and Payment Systems Report 2017.
Muhammad said living wages in Kuala Lumpur (KL) in 2016 was estimated at RM2,700 for an adult, RM4,500 for couples without children and RM6,500 for couples with two children.
“This is just a guideline used by many advanced economies to give an idea on what type of wage is considered decent. In Malaysia, the highest cost of living is actually here, and to a certain extent, the suggested minimum wage could also be applied in Penang and Johor Bahru,” he said.
“If you are single person living in Muar, and you earn RM2,700, you will live very comfortably because the rental rates and the cost of living are low,” he said.
He said such living standards went beyond having basic necessities, as it included meaningful participation in the society, personal and family development and freedom from severe financial stress.
The provision of living wage should also commensurate with productivity, and could be a step towards a higher quality of life in Malaysia, he said, adding that the living wage could serve as a guide of the income level needed to achieve the minimum acceptable living standard.
“There are two aspects to be considered – cost of living and improvement in income – and this is why the government has embarked on various strategies that could create high paying jobs,” he said.
Muhammad said BNM is planning to set up the Malaysia Bureau of Labour Statistics, which would enable the government to keep tabs on job creations and monthly salaries.
BizHive Weekly explores the possibility of raising the average minimum income in Malaysia:
However, expenditures grew at a faster pace of six per cent, or RM120 per month, which leaves the B40 with little money to spend. Tan Sri Muhammad Ibrahim, BNM Governor