As inflation hits home, will wages suffer?

As inflation in March hit 6.7 per cent, marking yet another 26-year high, businesses are beginning to feel the pain.

For the salaried employee, this raises the worry of whether employers will resort to reducing wages in order to cut costs. “Particularly for most Singapore companies, wage is the most important element of cost,” said HSBC economist Robert Prior-Wandesforde.

A wage cut, or even a smaller increment this year, would be a double whammy for the consumer whose pay has yet to keep pace with the rising prices of food and oil.

Hewitt Associates compensation consultant Puneet Swani warned: “Organisations will need to relook at salary increases and predictions that were made (earlier).” For example, a January survey by the Singapore Human Resources Institute and the Remuneration Data Specialists had expected pay to rise about 5 per cent this year.

In sectors like finance and IT, the talent crunch and strong domestic demand would keep wages on an upward trend, predicted human resource consultants. “Organisations cannot afford to cut down on salary increases because talent will leave,” said Mr Swani.

But given the slower global outlook, wages and bonuses are not expected to reach the record highs seen last year.

Said Mr Tim Hird, director of recruitment firm Robert Half: “As the economy may slow down in certain sectors, companies are becoming more selective about how much they pay and who they give the bigger bonuses to.”

But smaller businesses might find it harder to dole out higher wages.

Those in the food and beverage sector as well as logistics and transportation would be more affected by the cost hikes, noted Association of Small and Medium Enterprises president Lawrence Leow: “While SMEs are doing well here, they would approach wage increases cautiously given the current market.”

Sales director L Wan, for one, would look at cutting back on wage increases for his 15 staff “but nothing has been finalised yet”.

Traditionally, the National Wages Council unveils its recommendations in May. The Government’s move this month to set a stronger Singapore dollar trading range has helped some businesses mitigate rising costs and improve profit margins.

Source : Today – 24 Apr 2008

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