Legislated wage hike seen raising inflation

A LEGISLATED wage hike could push inflation higher, an economist warned on Wednesday as a business group continued to raise concerns over a measure making its way through Congress.

“If there’s an eight-percent minimum wage hike, inflation can increase by 1.2 percentage points…,” HSBC economist Aris Dacanay said during a Management Association of the Philippines membership meeting.

“This is something we are looking out for,” he added.

The Senate on Monday approved a P100 minimum wage increase for all private sector workers, rejecting claims by businesses and analysts that it would have an adverse economic impact.

If the measure becomes law, it will be the first legislated wage hike since 1989, which was also when the country shifted to setting minimum wages via regional tripartite boards.

The regional wage boards continually issue adjustments, and the Bangko Sentral ng Pilipinas (BSP) has warned that pay hikes could lead to higher inflation.

The central bank’s benchmark interest rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points (bps) of rate hikes beginning May 2002 as inflation started surging.

Consumer price growth has since returned to the BSP’s 2.0- to 4.0-percent target, but monetary authorities have said that rates will remain high as inflation has yet to stabilize.

Dacanay said that if the wage hike and other risks materialize, the central bank will likely delay expected rate cuts.

“The BSP has room to delay its rate cuts mainly because we don’t have the growth problem,” he noted.

“Growth has been really strong, so the BSP can really take its time.”

For the moment, Dacanay expects rate cuts to start in June with 75 bps in total for 2024 and another 75 bps next year.

As this developed, the Philippine Chamber of Commerce and Industry (PCCI) said that a legislated wage hike would discourage foreign investments.

“No one would ever try to look at the Philippines once they see that legislators can enact wage hikes anytime, even disregarding the authority of the national wage board,” PCCI President Enunina Mangio said.

The country’s regional wage boards are supervised by the National Wages and Productivity Commission.

She reiterated claims made last week that just five million private sector workers would benefit while 47 million others in the informal sector would be disadvantaged.

“The P100 proposed wage will not even be enough when inflation goes up,” Mangio said.

“Why don’t we instead legislate measures to address the rising cost in food prices and other issues that hamper our economic growth?”