It has been a while since I updated the current situation in Malaysia. So here it goes.
As we have known, Malaysia’s inflation rate is one of the lowest in the region, and perhaps in the whole world. The figure below shows Malaysia’s inflation rate (year-to-date) comparing to other economies in the world.
The reason inflation in Malaysia is low is because of the direct intervention from the government in putting a price cap on everyday necessities, including chicken, eggs, petrol, and utilities.
Nevertheless, even with the intervention, prices keep increasing. The figure below shows the price movement of 123 items tracked by the Department of Statistics Malaysia. Back in January 2022, only 86 items recorded a price increase. Recently as of July 2022, the numbers went up to 99.
If I dig these numbers deeper, around 31 items recorded a price increase above 5 percent. Mostly food items. As we can see, the trend increased since early of the year. The figure below is self-explanatory.
In comparison, only 13 items recorded a price decline. Those items were medical products, air travel, and recreation and culture, just to name a few.
The point is, even with the direct intervention, prices continue to increase. This further demonstrates that inflation is not just a macro issue, but also a micro issue (logistics, cartels in some food industries, hoarding, etc.)
Now, let us talk about food prices, as it consumes close to 30 percent of the overall consumer price index basket. Plus, we import more than we export food.
The figure below shows inflation for food at home and away from home. As we can see, the numbers are increasing for both components.
Price movement, especially for food, is highly influenced by the exchange rate and global oil prices. The figure below shows the impact of the movement of the ringgit and oil prices. As we can see, food items highly impacted by these movements are fresh seafood, coconut, fresh fish, and fresh meat.
Both currency movement and oil prices are external factors that Malaysia does not directly influence.
The good news is, that oil prices have cooled down recently, reflecting some pessimism in the global economy.
The bad news is, the Ringgit has not shown any clear sign that it will appreciate soon. This is because of the very strong Almighty Dollar, which pushed down all major and emerging currencies.
So, it is hard to see where inflation will be without the direct government intervention. The government said that the inflation rate would be around 11% without all of the subsidies. I feel it was underestimated since the calculation only considers if the price cap for RON95 is removed. If the price cap for diesel is removed, it could be much higher.
Note: Technically, Malaysia can directly influence the Ringgit’s movement if they wish. However, this comes at a very high cost.
Of Economics & Other Findings 
Leave a comment