KUALA LUMPUR (June 17): Experts say Malaysia must undertake comprehensive labour market reforms and re-evaluate its wage-setting mechanisms to address the widening gap between wage growth and the rising cost of living, which has led to a decline in real wages for Malaysians.

The remark comes amid mounting concerns that Malaysian workers are increasingly unable to keep up with rising prices, despite the country’s low official inflation rate, the speakers said at the Sasana Symposium 2025 event hosted by Bank Negara Malaysia (BNM).

“The numbers are telling — real wages have declined despite gains in productivity,” said BNM deputy governor Datuk Marzunisham Omar.

“This disconnect suggests that wage levels in Malaysia are not reflecting productivity gains. We cannot rely solely on market forces to determine wages anymore.”

He noted that from the first quarter of 2020 to the first quarter of 2025, the consumer price index (CPI) rose by 9.8%, while food and beverage prices surged by 17.5%. In contrast, nominal wages in the private sector grew by only 7.9% over the same period — resulting in a real wage decline of 1.9%.

While BNM has managed to rein in headline inflation — which moderated to 1.4% in April 2025 from a peak of 4.7% in August 2022 — concerns over affordability persist due to stagnant income growth. This has intensified pressure on low- and middle-income households, who are grappling with higher food costs and a raft of upcoming fiscal measures, including the expanded sales and service tax (SST) beginning July 1.

“There is a perception gap between what official inflation data tells us and what people feel on the ground,” said group lead and lead economist Asean+3 Macroeconomics Research Office (AMRO) Kian Heng Peh. 

“This is driven by psychological biases, but also by structural shortcomings in how the CPI reflects real household spending, especially among the lower-income groups.”

The mismatch between economic data and lived experiences is most acutely felt by fresh graduates and the B40 (bottom 40% income) group, according to Muhammed Abdul Khalid, Research Fellow at the Institute of Malaysian and International Studies (IKMAS), Universiti Kebangsaan Malaysia.

He noted that median starting salaries for graduates fell from RM2,112 in 2018 to RM1,747 in 2023, with many entering the labour market at near-minimum wage levels. 

Muhammad Khalid added that the implications of low wages are far-reaching, particularly for long-term human capital development. “One in five children in Malaysia is stunted, largely due to poor nutrition. This is a national crisis that affects not just health outcomes, but also education and future earning potential,” he said.

He also warned that the expansion of the SST, coupled with potential electricity tariff hikes and fuel subsidy rationalisation, will compound the burden on low-income households, many of whom already spend over 45% of their income on food.

“We need to look seriously at how wages are determined. It should involve a more coordinated effort among employers, employees, and the government. Policy instruments like the progressive wage model and differentiated minimum wages should be considered,” said Marzunisham.