1-7-2023 (MANILA) Economists are raising concerns that the recently approved wage increase in the National Capital Region (NCR), set to take effect this month, along with impending increases in other provinces, could potentially contribute to inflationary pressures.
According to Aris Dacanay, an economist for the Association of Southeast Asian Nations (ASEAN) at HSBC, the impact of the seven percent minimum wage increase in the NCR on inflation is estimated to be between 0.4 and 0.6 percentage points.
“While we estimate the maximum impact on inflation to be around 0.4 to 0.6 percentage points, it’s important to note that not all of the higher operating costs of businesses will be passed on to consumers. Some firms may have profit margins high enough to absorb the costs,” explained Dacanay.
The regional tripartite wage and productivity board of the NCR recently approved a 40-peso wage hike for all minimum wage earners in Metro Manila, raising the minimum wage from 570 pesos to 610 pesos per day, effective July 16.
Despite recent easing of headline inflation in the Philippines, Dacanay highlighted that the current economic environment remains challenging, with risks of inflation remaining stubbornly high.
The Bangko Sentral ng Pilipinas (BSP), the country’s central bank, believes that inflation has already peaked at a 14-year high of 8.7 percent in January and is expected to return to the target range of two to four percent by October or November this year.
However, the average headline inflation from January to May remained at 7.5 percent, significantly above the central bank’s target range and the projected 5.4 percent for the year. In May, inflation cooled for the fourth consecutive month to 6.1 percent from 6.6 percent in April.
The BSP’s Monetary Board recently lowered its inflation forecast for this year to 5.4 percent from the previous projection of 5.5 percent. However, they raised next year’s inflation projection to 2.9 percent from 2.8 percent.
Michael Ricafort, the chief economist at Rizal Commercial Banking Corp., emphasized that the wage hike could result in second-round inflation effects, leading to higher prices of goods and services.
Ricafort pointed out that the seven percent wage increase in Metro Manila, coupled with upcoming hikes in other regions, could translate into higher costs for consumers.
Disappointed labor groups expressed their dissatisfaction with the 40-peso wage increase in Metro Manila, stating that they would push for a higher across-the-board wage increase of 150 pesos, which has been filed before the Senate and House of Representatives.
“We are disappointed because the order not only came late, but also because it primarily considered the interests of businesses instead of the workers,” said Rene Magtubo, the chairman of Partido ng Manggagawa.
Sonny Matula, the president of the Federation of Free Workers, emphasized that the struggle for a fair and living wage is far from over, despite the recent development.
The wage increase in Metro Manila was also criticized by labor unions, with Jerome Adonis, the secretary-general of Kilusang Mayo Uno, stating that the 40-peso increase is not even enough to buy a kilogram of rice.
Lawmakers also expressed their disappointment, considering the wage increase insufficient. Senate President Juan Miguel Zubiri acknowledged the positive development but emphasized that it falls short of the required living wage. Senate Minority Leader Aquilino Pimentel III called on other regional wage boards to follow suit and increase minimum pay in the provinces.
The issue of wage hikes and their impact on inflation continues to be a contentious topic, with policymakers and economists closely monitoring the situation.
