Malaysia: 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.
According to BERNAMA News Agency, 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. The report highlighted that rather than causing inflation, higher wages have bolstered domestic demand by enhancing the consumption capacity of lower-income groups. This aligns with Bank Negara Malaysia's expectations that the overall impact on inflation following domestic policy reforms, including the minimum wage revision, is contained.
The transition towards the implementation of a minimum wage began in 1947 with the establishment of the Wages Council, and the Minimum Wage Order was gazetted in 2012 to protect low-wage earners. Since then, the minimum wage has been revised five times, gradually increasing from RM900 for Peninsular Malaysia and RM800 for Sabah, Sarawak, and Labuan in 2013, to the current rate of RM1,700.
The report also addressed common perceptions about foreign workers, women, and youth earning below the minimum wage threshold. Data contradicts this perception, showing that the majority of those earning below the minimum wage are local, mostly male, aged between 25 and 34, and concentrated in the services and manufacturing sectors. 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.
In addition, the report stated that the National Wages Consultative Council (NWCC) reports had consistently confirmed that implementing minimum wage benefits both employers and employees. Employers could maintain and increase the use of automation and technology to improve efficiency, while employees could sustain remuneration packages, including allowances, other cash benefits, bonuses, and training.
The report concluded that implementing the minimum wage policy alone was insufficient to address dependency on low-skilled foreign labour and should be complemented with other targeted policies to reduce foreign worker employment across various sectors. However, it emphasised challenges such as small-scale businesses struggling with higher wages due to limited resources and limited capacity within enforcement agencies for monitoring compliance. Based on NWWC's report, around nine per cent of employers did not adhere to the minimum wage policy, with 23.4 per cent of establishments not paying according to the current rate, predominantly micro, small and medium enterprises (MSMEs).
The MoF report proposed several improvements, including strengthening monitoring and enforcement mechanisms and exploring measures for structured annual wage increases aligned with inflation and productivity trends. Budget 2026 is set to mark a pivotal step under the 13th Malaysia Plan (13MP) towards achieving high-income status by 2030.
According to the report, Malaysia's economy is projected to maintain growth momentum in 2026, between 4 and 4.5 per cent, supported by robust domestic demand and a resilient external sector. 'Raising the Floor' is a key element of the Ekonomi MADANI framework in Budget 2026, aimed at enhancing the well-being of the rakyat, ensuring a decent standard of living, and providing pathways for upward mobility.