Inflation seen eating into pay hikes this year

INFLATION is likely to take a big bite of that fat pay rise this year. With Singapore workers looking forward to some of the biggest pay rises in the developed economies at 5 per cent, ECA International, a global club of human resource practitioners, says real take-home increases will be 'relatively subdued'.

A surge in prices of oil, food and lodgings will 'counter-balance' the projected big pay rise 'considerably' not just in Singapore but also in the likes of China, South Korea and Taiwan, ECA said in a statement released yesterday.

'This latest upswing in inflation, which has caught many people by surprise, will have an impact on real salary increases in 2008,' said the firm's general manager Lee Quane.

'When many companies calculated salary increases for 2008, inflation forecasts were relatively low,' he said. 'Inflation in Singapore, for example, is now around two-and-a-half times higher than anticipated in October forecasts, so employees here are likely to experience relatively subdued real income rises in comparison to previous years.'

The situation is going to give companies faced with a tight labour market a big headache in the coming months, according to Mr Quane.

'They will need to consider revising their forecast salary increases or provide higher salary increases next year to make up for this year's relatively low increase in real incomes,' he said.

In nominal terms, ECA's recent poll shows Singapore workers can expect their pay to go up by an average of 5 per cent in 2008 - thanks to a robust economy and a labour shortage.

While this is below the estimated 7.3 per cent average for Asia as a whole, it is still higher than last year's 4.5 per cent.

'For a developed economy such as Singapore, this level of wage increase is high,' Mr Quane said.

'Most other developed economies in our survey are showing forecast wage increases of approximately 4 per cent.'

Hong Kong, Singapore's chief economic rival, is likely to see pay increases flat at 4 per cent this year - the second-lowest in the region, according to ECA.

Japan, again, has the lowest projection for pay rise in Asia for 2008 - 3 per cent, the same as in 2007.

The Philippines is tipped to join India, Vietnam and China in seeing the biggest pay increases.

Salary increases in Asia are expected to be 25 per cent more than they were in 2005. And for the first time, the region's pay hikes are tipped to be higher than those in Eastern Europe, where signs show wages are starting to stabilise.

'Regionally, India and Vietnam are expected to see the biggest increases when compared with last year,' ECA said.

'In India the 14 per cent salary rise is significantly up on last year's high of 12.6 per cent, while Vietnam's 10 per cent prediction is a notable increase on the 8.5 per cent in 2007.'

Led by India, Asia is projected to have the biggest pay increase in 2008.