Minimum Wage Increase Could Spike Inflation

The recent upward adjustment of the minimum wage in the public sector is likely to spike an upsurge in inflation, experts have warned.

This week government made a cost of living adjustment for its workers to the tune of RTGS $ 400 million that will see the least paid civil servant earn RTGS $ 6oo.

While the move has been welcomed as a timely intervention to cushion civil servants from the rising cost of living, experts say the adjustment alone is not adequate if measures to arrest inflation are not put in place.

Already Inflation in the month of February scaled up 59.39 percent as inflationary pressures remain unchecked.

“It’s a good move by government to cushion its workers but that alone is not adequate,” says economic analyst Pepukai Chivore.

“If we increase salaries without dealing with inflation we run the risk of having a wage-price-spiral. Salaries can be raised, but then prices will rise again then you raise salaries again we end up with a wage price spiral,” he added.

Chivore believes the move by government is also likely to set a precedence for all employers who use government pay grade as the yardstick.

This will further strengthen aggregate demand as consumer spending is expected to increase.

But the volatility of the bond note remains the biggest concern.

The price of most goods on the market is based on the parallel market’s USD evaluation hence increased aggregate demand will likely weigh on the exchange rate, hence an increase in pricing.

“To beat the wage price spiral, government should emphasize much on non-monetary benefits to cushion its workforce from the rising cost of living” Chivore said.

Already, government has availed free transport for some of its workers who commute on a daily basis following relentless pressure from labour unions representing the public service since last year.

But observers say the increase in salaries is still far below the Poverty Datum Line.

In 2018, the PDL stood at an average of $ 580 per month prior to third quarter when food inflation rose over 300 percent.



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