Inflation worries after minimum wage enforced in Malaysia

The country’s minimum wage enforcement raises inflation risk, but the government is aiming for wage-price balance to help cope with the cost of living.
By: | July 6, 2023

The recent enforcement of the RM1,500 (US$325.58) minimum wage for employers with fewer than five employees in Malaysia has sparked discussions regarding its potential impact on the country’s inflation rate. Rafizi Ramli, Minister of Economic Affairs of Malaysia, acknowledged the need for a careful assessment of the situation to ensure a balanced approach to economic policies.

The Malaysian government, in a bid to address wage disparity and improve living standards, implemented the minimum wage order on 1 July 2023. The minimum wage order for the entire country was officially gazetted on 27 April 2022, with implementation beginning on 1 May 2022. However, concerns have been raised about the potential inflationary effects of this policy.

He said, “The enforcement of minimum wage order comes with a risk of inflation, but we (the government) always make sure that the increase in the wage rate can help balance the salary and the cost of living of the employees.”

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Malaysia has experienced a gradual decline in the inflation rate over the past nine months. In May 2023, the country’s inflation rate dropped to 2.8% from 3.3% in the previous month, reported New Straits Times.

“What’s important is that inflation can be absorbed by a wage increase that is commensurate with the value of work and the increase in the prices of goods,” he said, adding that the enforcement of the minimum wage order could also ensure that people’s income increased periodically in line with the rising cost of living.