Inflation Rate - Malaysia

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The Govt claims that inflation runs somewhere in the region of 3% /annum!

We know that when price increases occur it is rarely if ever as low as 3%.

When a toll charge increases from RM1 to RM1.20 that is a 20% increase.

When bread increases from RM3 to RM3.60 that is 20% etc etc.

What do you think the real rate of inflation is, and do you have good examples to support it?

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hi,

A couple of days ago the Deputy Finance Minister stated (Star Newspaper) that inflation would be in the range of 2% - 2.5% for 2007, and pretty much the same for 2008. The latest Economist Magazine figures give Consumer Prices at currently +1.9, year ago +3.3, and 2007 +2.1.

I suppose it all depends on which set of figures are used, and how much the big-ticket items have moved, and the weightage given to them.
 
regards, Scott

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hi,

Today's StarBiz stated that data from the Statistics Department had the consumer price index (CPI) for September rising 1.8% to 106.0 compared with 104.1 in the same month last year. For January to September, the CPI increased 2% to 105.4 compared to 103.3 same period last year.

Also, the latest Malaysian Institute of Economic Research (Mier) report said inflation had risen to 1.9% in August from 1.4% in June, mainly due to a revision in civil service salaries, and rising food and commodity prices. Inflation for the year is expected to average 2.2% compared with 3.6% last year.

regards, Scott

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Yes I see such figures all the time Scott, but do I believe them?

My original point is that I find these figures had to 'swallow' given that that prices increase (albeit not always every year) by a lot more that a few percent.
Take fuel increase for example. Petrol went for RM1.35 to RM1.62 and latterly to RM1.92. Each increase being a lot more than 2 or 3%!

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Reports in todays papers from the UMNO General Assembly talk about a call for abolition of subsidies in the near future!

I quote.....
"Although Datuk Seri Abdullah Ahmad Badawi did not explicitly mention it in his key-note address when opening the assembly on Wednesday, the Umno president during a closed-door briefing a day earlier had informed delegates and observers to brace for the bad news on Malaysia's oil and gas production.........The prime minister gave a frank assessment on the possibility of the country becoming a net importer of oil in less than four years, as surplus for domestic consumption would be depleted by 2011.

This means subsidised fuel will come to an end soon. To stubbornly deny the truth would mean Malaysians would suffer in other sectors if the subsidy is maintained.
Delegates seem to understand the situation. While a few speakers brought up the issue of price increases, they knew the message was to prepare for the worst, and not to blame the Umno-led Barisan Nasional government."

Does anyone actually know how much a liter of fuel would cost if there were no subsidy at all??

If this happens then we will all experience a significant jump in the cost of living...but is is still going to be a lot cheaper then the UK for example. Most of the cost of petrol in the UK is thanks to very high Govt taxation applied to the fuel.

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Reported in The Star Sat 10th Nov 2007. Full article HERE

New fuel scheme

We also need to be less dependent on foreign workers, says Pak Lah

KUALA LUMPUR: A new fuel subsidy scheme and lower dependence on foreign workers are on the cards.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said the present fuel subsidy scheme could not go on as it was costing the Government RM80bil a year.

He pointed out that the country’s “addiction” and dependence on foreign workers, who number some two million, also could not continue because it was counterproductive.

 “A new subsidy scheme is being looked into where the rich will pay more for fuel and the poor less.”
 “Most foreign workers are unskilled labour who do not contribute towards nation-building.”

I am not sure how this would work in practice, and would surely be open to abuse. Does anyone know of any other country operating a two tier fuel pricing system other than farm diesel & commercial diesel.
I would have thought it better to provide extra benefits for the poor who could use it to purchase fuel & other essential items!

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Yes, Fizzy looks like price hikes on the way particularly when he left it at the closing making sure they 'stick' to the memory of the delegates.
As The PM said 'the rich will pay more for fuel and the poor less"...I wonder if it'd go according to the engine size by implimenting a 'fuel surcharge' in the annual car road tax so cars with bigger engine get the brunt of the taxes Cars with 1L engine pays the minimal 'fuel tax', 1.3L pays more and anything above 1.5L pays graduated increased rates...just depends how steep the graph gets? Same with motobikes.
Less available foreign workers could mean paying more for hiring locals doing the same job resulting in increased costs of living across the board....or long waiting to get things done? like we've been waiting 4-5 months (2 visits & 5 calls) for a landscaper to do a 'small' job, they've even been to look over and given some suggestions... the last call 3 weeks ago I was told not to call as they would call when they can make it!! So we decided to DIY. We found a supplier of interlocking verticle stones, went over got a catalogue, but they're not interested in the 'smal' business when we wanted to purchase just a couple hundred...the manager didn't even bothered to return our 2 calls
We finally found 3 Bangladashis to do the initial work of removing some overgrown stuffs and moving a fruit tree....they did the removing very expertly and killed our fruit tree,too
Hmm, looks like the scenario will only get worse.
Lets drive a MyVi or Kanchil 

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hi,

The PM said that fuel subsidy costs RM80 billion, his son-in-law (Khairy) said it was RM35 billion. Fuel in Singapore is not subsidised and it costs the equivalent of RM4.60 per litre. Fuel in Thailand and Indonesia is also not subsidised and it costs 40% more than Malaysia.

Maybe the PM means that the rich drive bigger and better cars which cost more to run?

If the fuel subsidy is removed, bringing prices up to Thailand levels, then a lot of subsidy cash will be available to fund the Ninth Malaysia plan, all those corridors, hubs, and development regions. And they'll need loads of foreign workers.

regards, Scott

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The Star Thursday 29th Nov 2007.

Article starts: "The toll on six highways will be raised by between 7.69% and 50% on Jan 1 but rates on four major ones, including the closed-toll portion of the North-South Expressway (NSE), will be maintained........"

Read the detail Here

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hi,

There's been some various comments the past few days, in the local newspapers, about the expected inflation rate for next year.

HSBC Singapore opines, "Overall we are looking for headline inflation to jump by about one percentage point next year and ... upside risks to food price inflation in Malaysia points toa rise from the current 3% to 4.5% in the next six months."

An article in the New Straits Times (Asean Inflation, dated 18/12/07) states, "if growth sticks around 6% Bank Negara may start raising interest rates in the 2nd 1/2 of 2008, and the Overnight Policy Rate may move up to 4% by end-2008."

Another article in Star (Inflation Likely to Hit 2.8% to 3.5% Next Year, dated 17/12/07) has several economists (from DBS, Aseambankers, Aminvestment Bank) giving predictions of 2.8%, 3% - 3.5%, and 3% respectively. This article also states, "there is a likelihood of the ringgit hitting 3.30 to the US$ by year-end and 3.15 to 3.20 by the end of next year."

Later in the same Star edition, and there's this from Aberdeen Asset Management, "Malaysia, it seems to me to be in an inflationary time-bomb becasue there are so many subsidies - the ringgit is being kept down, fuel price is kept down, flour, sugar, cement, steel prics are being kept down. The wages for an average lower middle class person in Malaysia, or junior management, in proportion to the cost of living are much lower here than elsewhere. Malaysia needs to lift the huge subsidy that is holding everything down, then maybe wages will be at a more reasonable level."

Where these articles refer to the fuel price subsidy there's general agreement on a 10% to 20% price increase sometime next year.

On the NTV7 English news yesterday the Second Finance Minister gave an assurance that although prices seemed to be going up a lot, the data given by the government for the Consumer Price Index was accurate.

regards, Scott

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hi,

Today's The Star has a short article that gives the February 2009 inflation rate as 3.7% from 1-year earlier.

It says that "meanwhile, from January to February 2009, the consumer price index (CPI) was up by 3.8%, says the Statistical Department."

regards, Scott

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hi,

With inflation in various countries becoming more of an issue in the news, here's the latest comment from the Star newspaper in an article on Bank Negara keeps interest rate at 2.75% :

28 Jan 2011 : Bank Negara retains benchmark Rate
PETALING JAYA: Bank Negara has decided to maintain the overnight policy rate (OPR) at 2.75% as it considers the existing monetary policy stance as appropriate and consistent with the current assessment of economic growth and inflation prospects.

“The stance of monetary policy continues to remain accommodative and supportive of economic growth. However, the large and volatile shifts in global liquidity are leading to a build up of liquidity in the domestic financial system,” it said in a statement yesterday.

However, the central bank said additional policy tools might be considered if there were risks of macroeconomic and financial imbalances. “While the liquidity in the financial system has been manageable, going forward, additional policy tools such as statutory reserve requirement (SRR) and macro-prudential lending measures may be considered to avoid the risks of macroeconomic and financial imbalances.”

The SRR, which currently stands at 1%, is a monetary policy instrument available to Bank Negara to manage liquidity and credit creation in the banking system.

It is used to withdraw or inject liquidity when the excess or lack of liquidity in the banking system is perceived by the central bank to be large and long-term in nature.

OPR is an overnight interest rate set by Bank Negara used for monetary policy direction. It is the target rate for the day-to-day liquidity operations of the central bank.

An economist with a local bank-backed brokerage said the central bank's decision to maintain the OPR was within expectations.

“An increase in OPR was not expected despite growing inflationary concerns in the region.

“However, we do believe that the central bank may need to tighten monetary policy later in the year as inflationary pressure escalates in the coming months due to rising commodity prices,” he said.

Standard Chartered Bank economist Alvin Liew said in a note yesterday that while he expected Bank Negara to maintain the OPR for now, a hike could be seen as early as March. “We still expect the central bank to raise the policy rate by 25 basis points (bps) in March and another 50 bps in the second quarter, bringing rates to 3.5% by mid-2011, as inflation expectations are likely to rise.

“This is given the economy's expected steady momentum (with the risk to the upside for growth owing to strong investment activity), likely higher commodity prices and the gradual implementation of subsidy reforms,” he said.

“We project average inflation at 3.4% in 2011, up from 1.7% last year,” he added.

The central bank, in its statement, went on to say that despite continued recovery in the global economy, shifts in global liquidity have resulted in significant capital flows into emerging economies, in particular Asian region, which have brought with it risks to macroeconomic and financial stability.

“The region is also being affected by global inflationary pressures arising from higher commodity and food prices.”

Bloomberg, in its report yesterday, noted that accelerating consumer-price gains in the region had prompted Thailand, South Korea and India to increase interest rates this month.

“While Malaysia's inflation reached a 19-month high of 2.2% in December after the Government reduced subsidies on fuel and sugar, the rate is the lowest in Asia after Japan and Taiwan,” it said.

The central bank said the increase in headline inflation was mainly on account of higher food and energy prices.

“Prices are expected to increase at a modest pace in the coming months, driven primarily by rising global commodity and food prices.

“The assessment is that inflation will continue to be driven by supply factors, with limited evidence of excess demand exerting pressure on prices,” it said.

Earlier this week, Malaysian Institute of Economic Research (Mier) said it expected a 25-basis point hike in the country's benchmark interest rates to 3% from the current 2.75% by the year-end.

Mier executive director Dr Zakariah Abdul Rashid reportedly said that the benchmark interest rate would be raised only in the second-half of 2011 as inflation picked up from the faster pace of economic growth.
End of Article
Source : biz.thestar.com.my/news/story.asp?file=/2011/1/28/business/7889227&sec=business