Minimum wage hike 'a challenge' for business: MPC

In the minutes of its July 13 meeting, when the policy rate was raised for the fourth time this year to 3.25 per cent, the MPC said many members said the wage rise must be at levels commensurate with rising living costs. Many parties have voiced concerns over the Pheu Thai government's policy to raise the nationwide daily minimum wage to Bt300.

TMB Bank's research house said the move would push core inflation beyond 5 per cent, way above the BOT's 3-per-cent target.

June's headline inflation rate was 4.06 per cent, with the previous month's figure being 4.19 per cent. Core inflation rose 2.55 per cent in June, compared with 2.48 per cent in May.

The MPC said rising food and energy prices remained the key risks to the Thai economy amid robust growth and continued fiscal stimulus, prompting it to agree unanimously on another rate hike, according to the minutes of its July 13 meeting, released yesterday.

"Despite a slowdown in the rise of prepared-food prices, continued upward adjustments in the prices of prepared foods together with high energy prices resulted in inflationary pressure remaining at an elevated level," the minutes said.

The risks of inflation outweighed the risks to growth, especially in light of continued fiscal stimulus, which may add to inflationary pressure. "As a result, a continued increase in the policy rate would be needed to contain inflation, particularly as it is demand-driven," the minutes said.

Inflationary pressure remained a key risk in the second half of this year on persistently high prices of prepared food and fuel and a narrowing output gap that could allow greater pass-through of production costs to retail prices, it said.

Even if measures aimed at relieving the cost of living slow price rises, the incoming government's planned measures, including the increase in minimum wages, would add to price pressure and may accelerate inflationary expectations.

The policy-makers are also keeping an eye on the global economic recovery, the euro zone's sovereign debt problems and the fiscal-policy formulation of the incoming government.

There is considerable uncertainty surrounding more government spending, particularly next year, and fiscal prudence will be required, it said.

The incoming government should gradually phase in its spending over time, prioritise its projects and target those with the greatest need, according to the minutes.

Besides, it should put emphasis on investment to improve productive capacity for a sustainable increase in growth and living standards. Tax reform should be implemented to raise government revenue to cope with increasing expenditure.