Wage hikes unlikely to boost demand or fuel another inflation spike

The 7% hike in minimum wages in the National Capital Region (NCR) is unlikely to boost domestic demand to the extent that it will fuel another spike in inflation, analysts said.

In an e-mail, Oxford Economics assistant economist Makoto Tsuchiya said the minimum wage hike in NCR, which takes effect on July 16, will provide support to households that are grappling with rising cost of goods.

“But we estimate the real minimum wage in NCR in 2023 will still be lower than the 2020 level given surging inflation for the past few years. Therefore, the hike is unlikely to boost domestic demand to the extent that will reaccelerate inflation,” Mr. Tsuchiya said. 

Last week, the Regional Tripartite Wages and Productivity Board (RTWPB) of the NCR approved a PHP 40 wage hike for all minimum wage earners in Metro Manila, bringing the minimum wage from PHP 570 to PHP 610 a day effective July 16.

“Given that the increase is roughly 7%, only slightly faster than the growth of the economy, we feel that the increase in wages may not fan out of control inflationary pressures just yet,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.

On the other hand, Security Bank Corp. Chief Economist Robert Dan J. Roces said any wage hike is inflationary and could increase demand for goods and services as workers have more money to spend.

“In effect it may lead to higher prices with businesses passing on the cost of increased wages to consumers,” he said.

In terms of risk, Mr. Roces said the “inflationary tendency, if any, may be offset by raising interest rates especially in this current environment.”

The Bangko Sentral ng Pilipinas (BSP) extended its policy pause for a second straight meeting in June, keeping rates at a near 16-year high of 6.25%.

While the wage hike raises the possibility of further tightening, Mr. Tsuchiya said the BSP’s next move will likely be a cut in the first quarter of 2024.

“Even with the minimum wage hike, we still look for inflation to continue trending down, which will allow the BSP to cut rates to support the economy… That said, if inflation does get out of control due to the combination of demand and supply factors, the BSP will need to respond by resuming its rate hiking cycle,” Mr. Tsuchiya said. 

More wage hikes?
Meanwhile, the regional wage boards of Central Luzon, Calabarzon, Western Visayas and Central Visayas will likely decide on pending wage petitions by September, the Department of Labor and Employment (DoLE) said on Monday.

“We anticipate that the wage boards in these particular regions will be doing their public hearings and public consultations from the month of July to September, and wage actions can be expected during this period,” Labor Undersecretary Benedicto Ernesto R. Bitonio, Jr. told CNN Philippines.

Mr. Bitonio said the NCR wage board considered the capacity of micro, small and medium enterprises (MSMEs) to handle wage increases when it decided on the PHP 40 hike. He added that many local firms are still recovering from the pandemic.

“We are in the process of recovering from that (the pandemic),” the Labor official said. “This is why the policy of the wage boards has always been to adjust the minimum wage rates in a moderate and predictable manner so as to balance all the interests that are involved in this wage determination process.” 

Last month, the Central Luzon Workers for Wage Increase asked the Central Luzon RTWPB for a PHP 640 increase to the current PHP 460 daily minimum pay.

Cebu City-based labor groups earlier filed a petition seeking a PHP 292.50 increase to the daily minimum wage in Central Visayas.

In March, Iloilo City trade unions sought a PHP 100 increase in the daily minimum pay for private workers in Western Visayas.

Labor organizations under the Workers Initiative for Wage Increase on March 27 asked the Calabarzon wage board to increase the daily minimum wage to PHP 750 from the current wages of PHP 470 for non-agricultural workers; PHP 429 for agricultural workers; and PHP 350 in retail and service establishments with not more than 10 workers.

Every wage order approved by an RTWPB must be approved by the Labor secretary. Wage boards can only act on wage petitions a year after a region’s last wage order.

Under the Labor Code, wage boards must consider the demand for a living wage, wage adjustment in the consumer price index, the changes in the close of living in the region, and the needs of workers and their families among others.

Aside from the wage hike petitions, lawmakers have also filed bills seeking across-the-board minimum wage hikes for workers in the private sector. 

The Employers Confederation of the Philippines has said wage increases may lead to the closure of many MSMEs, which account for 99% of the country’s businesses. — Keisha B. Ta-asan and John Victor D. Ordoñez