In July 2024, during question time in Parliament, Prime Minister Anwar Ibrahim said, “The Consumer Price Index is not perfect. Current times call for changes.”
The PM added that the government is developing a cost-of-living index that will include more categories in the basket of items measured.
These statements, viewed in the context of public grievances about a mismatch between the official CPI and the actual cost of goods and services on the ground, suggest that real cost-of-living factors have been compromised. The current basket of goods and services used to measure the CPI is less than realistic.
Given this distorted CPI, we can deduce that the actual cost-of-living factors are much higher than what the official index suggests.
Such imperfect CPI measurements have had a negative effect on wage movements, including the national minimum wage of RM1,700 per month, which took effect from February 2025.
Wages have been suppressed by reliance – even by the Industrial Court – on the current disproportionate CPI.
Whilst acknowledging prevailing low and stagnant wages, we cannot ignore the fact that the employee compensation (CE) ratio to gross domestic product (GDP) has declined from 37% in 2020 to 32.4% in 2023.
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According to a StarBiz article in 2023, “Raising wages of workers“, our CE ratio was on par with countries like Cambodia, Bangladesh, Uganda and Ethiopia. The same article stated that over two million workers earn less than RM2,000 per month.
Interestingly, the article also recounted stories about low wages: “An office worker earning less (in real terms) than his parents’ generation, an engineer graduate earning only slightly above the minimum wage, or an analyst at a small and medium enterprise who hadn’t had an increment for five years.”
This aptly captures the reality on the ground – the depressing truth that real wages have declined or even stagnated over the years.
According to former Bank Negara governor Muhammad Ibrahim, real wages declined by threefold over the last 40 years!
The working class, already drowning in the challenges of low and declining wages, will now have to bear the ripple effects of increases in the sales and services tax and electricity tariffs from July 2025.
Although many may not be directly affected or may be only marginally affected by these increases, such higher taxes and tariffs will raise the cost of doing business. Businesses will pass on such increases to the consumers.
The vast majority of the people, already ensnared in the low and middle- household income web, will have to bear the impact of the increases in the cost of goods and services. This will inevitably strain their already shrinking disposal income.
An imperfect CPI contributes to the suppression of wages. An expanding low and middle-income population will be overwhelmed by the rising cost of living. The resultant pass-through effect of price increases for goods and services caused by higher taxes and tariffs will worsen the financial burden on the lower and middle-income group.
Given the totality of the situation, wages need to be raised as quickly and fairly as possible. The current minimum wage module must be replaced with a “living wage”, taking the cue from a 2018 Bank Negara study. The study disclosed that the monthly living wage for an individual in the Klang Valley ought to be RM2,700.
The prime minister must keep his promise, given in Parliament, to develop a more realistic CPI.
As pay revisions are largely linked to the CPI, it is crucial for the index to be based on a more realistic basket that includes more categories, as was said in Parliament.
A response from the PM on the progress in developing this enhanced CPI would be much welcomed.
Apart from the migration to a ‘living wage’ module, an annual wage-adjustment mechanism needs to be put in place. This will enable wages to progress annually across the entire nation’s workforce.
With only about 6% of workers unionised and with just 2% of organised labour covered by collective agreements, it is vital that the remaining 98% of workers are granted reasonable annual wage increments.
This will ensure that there is an upward revision of wages instead of stagnation, as is the case now.
- Tegakkan maruah serta kualiti kehidupan rakyat
- Galakkan pembangunan saksama, lestari serta tangani krisis alam sekitar
- Raikan kerencaman dan keterangkuman
- Selamatkan demokrasi dan angkatkan keluhuran undang-undang
- Lawan rasuah dan kronisme
