Malaysia’s Inflation Stable Despite Wage Increases - Report

KUALA LUMPUR, Oct 9 (Bernama) -- Malaysia’s inflation trend has remained relatively stable at around two to three per cent between 2010–2024, despite periodic increases in the minimum wage rate, according to the Economic Outlook 2026 Report released by the Ministry of Finance (MoF) today.

The report stated that the ministry’s calculations showed that the increasing minimum wage and household purchasing power had not triggered excessive inflationary pressure, with the minimum wage set at RM1,700 in Budget 2025.

“Instead, higher wages have bolstered domestic demand by enhancing the consumption capacity of lower-income groups.

“This is also in line with Bank Negara Malaysia’s expectations that the overall impact on inflation following the announced domestic policy reforms, including the minimum wage revision, is to be contained,” read the report.

The transition towards the implementation of a minimum wage began in 1947, with the establishment of the Wages Council, before the Minimum Wage Order was gazetted in 2012 as a major step in protecting low-wage earners.

Since then, the minimum wage has been revised five times and gradually increased from RM900 for Peninsular Malaysia and RM800 for Sabah, Sarawak, and Labuan in 2013, to the current rate of RM1,700.

The report also refuted common perceptions that foreign workers, women, youth, concentrated in construction and agricultural sectors, as well as those in less-developed states, were earning below the minimum wage threshold.

“Data contradicts this perception, as the majority of those earning below the minimum wage are locals, mostly male, largely aged between 25 and 34, and concentrated in the services and manufacturing sectors. A significant share of around one-third of these workers are located in developed states such as Selangor and Johor.

“This situation arises because the minimum wage adjustments are not sufficiently attractive to local workers, especially in labour-intensive industries. Therefore, a more comprehensive approach is essential to realise the MADANI Economy framework and develop a more resilient workforce,” it said.

In addition, the document stated that the National Wages Consultative Council (NWCC) reports had consistently confirmed that the implementation of minimum wage benefitted both employers and employees.

Employers, it said, were able to maintain and increase the use of automation and technology to improve efficiency, while employees were able to sustain remuneration packages, including allowances, other cash benefits, bonuses and training.

The report also concluded that implementing the minimum wage policy alone was insufficient to address the dependency on low-skilled foreign labour and should be complemented with other targeted policies to reduce the employment of foreign workers across various economic sectors.

However, it emphasised that the implementation of the minimum wage faced its own challenges, including small-scale businesses struggling to afford higher wages due to limited resources, as well as the limited capacity within the enforcement agencies to monitor policy compliance.

“Based on NWWC’s report, an average of around nine per cent of employers did not adhere to the minimum wage policy. Internal analyses also show that about 23.4 per cent of establishments were not paying according to the current rate, with 91.3 per cent of them being micro, small and medium enterprises (MSMEs), and 8.7 per cent large firms,” the report said.

The MoF report also proposed several improvements, such as strengthening monitoring and enforcement mechanisms across all sectors, and exploring measures to mandate structured annual wage increases aligned with inflation and productivity trends.

Therefore, it said Budget 2026, which would be the first under the 13th Malaysia Plan (13MP), was set to mark a pivotal step in charting the nation’s medium-term economic direction towards achieving high-income status by 2030.

According to the report, Malaysia’s economy is projected to maintain its growth momentum in 2026, between 4 and 4.5 per cent, underpinned by robust domestic demand and a resilient external sector.

“‘Raising the Floor’ is among the key elements of the Ekonomi MADANI framework, manifested in Budget 2026, to enhance the rakyat’s well-being.

“This development agenda explicitly requires the government to safeguard the nation’s most valuable asset, the rakyat. Emphasis will be placed on ensuring a decent standard of living and pathways for the rakyat to move upward,” the report said.

-- BERNAMA