BOT closely monitors wage effects

 The central bank said in its 2012 economic report showed that 29.3 per cent is workforces in the private sector, mostly hired by small-sized enterprises and earning Bt257 on average.  Of total, one fourth, 24.9 per cent, or about 800,000 are in the construction sector, followed by those in the food, trade, food & beverage and textile businesses.
 The minimum wage would be raised to Bt300 on April 1 in 7 provinces including Phuket and Bangkok. Workers in Phuket now earn the highest minimum wage in the country, at Bt217. 
 Deputy BOT Governor Suchada Kirakul said that the central bank's monitoring will focus on two areas; the operating cost and private consumption. She said that if business operators can increase productivity to match the higher wage, the wage cost would not be pushed up by 30-40 per cent as suggested by the nominal wage increase. Meanwhile, it remains to be seen how the benefited workers would increase their spending. If the spending does not increase in line with wage, the inflation would not be in a worrisome condition.
 Suchada noted that both are the issues that the Monetary Policy Committee discussed at every meeting. If the condition changes, it may lead to a reversal in the interest rate policy, she added. 
 Paiboon, an assistant governor, commented that the wage policy may bring about unexpected impacts due to the historically steep increase. This could send a psychological impact and lead to a price spiral, as both higher wage and energy prices are pushing up the cost of supplies.
 The central bank’s report showed that to business operators, the higher wage is pushing up associated expenditure, like overtime, contribution to the Social Security Fund and other welfare. Reflecting their reliance on low-skilled labour and low profitability, operators in the trade, rubber/plastic product, construction and textile would be hit the hardest. It is vital for the operators and workers to improve productivity, to cope with the higher cost and new business challenges. The corporate tax cut to 23 per cent this year would partially address the impacts.
 The adjustment would also affect the overall pay structure, as those with earning above minimum rate would receive a lower pay increase. Meanwhile, if productivity is not enhanced, the operating cost as a whole would increase by 4 per cent.
 Higher purchasing power could spike up demand, and may affect the inflation. The central bank estimated that the higher minimum wage would push up headline inflation by 0.2 percentage point and core inflation by 0.3 percentage point.