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News Analysis: Wage-induced inflation to dim Asian economic outlook
2013/11/28
 

SINGAPORE, Nov. 28 (Xinhua) -- When Monetary Authority of Singapore projected early this week that the city-state's full- year inflation will range from 2.5 percent to 3 percent, analysts unanimously forecast that inflation next year would edge higher mainly due to higher pass-on wage costs, a problem also likely to overshadow economic outlook of most Southeast Asian nations.

Singapore consumer price increased to 2 percent on-year in October, up from 1.6 percent in September, but research houses such as Bank of America-Merrill Lynch Research expected inflation rate to edge higher to 2.7 percent in 2014, as the full impact of wage costs will likely be felt next year.

With the labor market remaining tight and inflows of foreign workers slowing in the city state, few analysts believed inflation woe will be dissipated for Singaporeans any time soon.

The wage-induced inflation is not only faced by Singapore but also by other major Southeast Asian economies.

The recent reading from Malaysia saw consumer price creeping higher to 2.8 percent on-year in October from 2.6 percent in September. While the latest inflation reading was in line with expectations, Bank of America-Merrill Lynch also forecast Malaysia 's inflation rate to edge higher to 3.2 percent in 2014.

Like Singapore and Malaysia, the future inflation numbers of Indonesia and Thailand will see higher pass-on from wage cost next year, fueled mainly by their hike in minimum wages.

The Thai government had raised the daily minimum wage to 300 baht throughout the country early this year as part of economic stimulus measures.

Early this month, a dozen governors across Indonesia also boosted the minimum wage in their localities by an average 19 percent in the wake of a two-day strike, which was on top of the average 30 percent increase in the minimum wage that already went into effect at the beginning of this year.

HSBC Global Research has raised concerns about the impact of wage-induced inflation on the region's economic outlook. It said companies in the region are facing relatively fast growing wage bills even as their pricing power has deteriorated.

HSBC pointed out that the impact is already evident in recent corporate earnings reports. The profits of most companies in the region were disappointing in most markets and their operating margins have also been eroded to certain extent.

But the most disturbing sign is in the collapse of the nominal gross domestic product (GDP) growth in the region in recent months. The slowing nominal GDP growth in most Southeast Asian economies indicated that corporate profits and debt which are reported in nominal terms were already adversely affected.

HSBC explained that as these economies are no longer expanding at a fast enough pace, this poses risks for profits and, ultimately, financial stability.

The steady consumer price growth amid slowing nominal GDP growth in Southeast Asia also indicated that despite wage increase, consumers in the region still have yet to spend at a fast pace enough to lift economic growth, said HSBC.

 
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