Legislated wage hike of P100 not seen pushing rates higher

A P100 legislated wage increase could stoke inflation, though not by enough to prompt the central bank to raise interest rates, economists said.

“It could take a combination of other factors to make Bangko Sentral ng Pilipinas to resort to a hike,” Jonathan L. Ravelas, senior adviser at professional services firm Reyes Tacandong & Co., said in a Viber message.

The Bangko Sentral ng Pilipinas (BSP) kept rates unchanged at 6.5% at its third straight meeting last week. It last raised borrowing costs by 25 basis points (bps) in October. It has hiked rates by a cumulative 450 bps between May 2022 and October 2023.

The BSP’s baseline inflation projections have not taken most recent wage hike proposals into account, BSP Assistant Governor Iluminada T. Sicat has said.

The Senate on Monday approved a bill seeking an across-the-board P100 minimum wage increase for private-sector workers, the first legislated wage hike since the Wage Rationalization Act of 1989.

The Employers Confederation of the Philippines (ECoP) called the legislated wage hike “catastrophic (and) inflationary,” adding that microenterprises would find it difficult to pay their workers and be forced to lay off staff.

Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands, said an interest rate hike later in the year should not be ruled out, but a minimum wage hike would not necessarily trigger policy tightening.

“Government should focus on improving the business and entrepreneurial environment to expand job creation so workers can seek higher pay based on their skills, experience and efficiency,” Bienvenido S. Oplas, Jr., founder of the think tank Minimal Government Thinkers, said in a Viber message.

“(Approving a legislated wage hike) is bad because wages and employment should be a contract between employers and employees, not the government and employees.”

Sentro ng mga Nagkakaisa at Progresibong Manggagawa Secretary-General Josua T. Mata said the push for a legislated wage hike properly addresses income inequality.

“Business has been cornering the wealth generated in our economy,” he said in a Viber message.

ECoP President Sergio R. Ortiz-Luis, Jr. has said 84% of the workforce, many of them in the informal sector, would not benefit from a legislated wage hike, adding that only about 10% of private-sector workers stand to benefit, with the impact of the hike transitory.

Labor groups have backed legislated wage hikes, calling them a means of reforming the regional wage-setting system.

The House of Representatives is set to tackle its own minimum wage hike proposals next week.

“It is high time for business to give to workers what they deserve, a fair share in the fruits of their labor,” Mr. Mata said.