Prices increase over time, Govt to ensure people can absorb them

  • Economy
  • Monday, 10 Feb 2014

IT must be understood that prices generally increase over time. This is because of two basic reasons – as populations and living standards rise, there is greater demand for goods and services. The other is when input costs go up for various reasons.

When the Government decided to rationalise subsidies and move towards market pricing for certain necessities, we knew that price increases would be inevitable. In this context, our concern is to ensure that the price increases are not too high and can be absorbed by the rakyat.

What then is the yardstick that we use to measure price increases? Is it the anecdotal experience of individuals who complain that the prices of particular products have gone up or do we do this scientifically?

The latter tends to be more reliable. I am aware that many people will criticise the existing consumer price index or CPI as not reflecting price increases. But really, there is nothing better and more scientific than that to measure price increases.

Let me explain why. The Department of Statistics has followed international standards in measuring price increases systematically and scientifically for many decades now.

Basically, consumption patterns of households are established through surveys and weightages are given for various items of expenditure such as food, transport, clothing, accommodation and such. The weightages are publicly disclosed and changed when necessary.

This is done at town, state and national levels by monitoring prices of 800 items across 30,000 outlets forming 178,263 data points every month. From this, the index is constructed and the overall price movement for the average household is calculated as measured by the change in the CPI.

It is also possible to see how the components of the CPI including food and transport have changed. It is a transparent process and anyone who is interested can see for himself how the entire CPI works.

In 2013, the average Malaysian household experienced a price increase or an average inflation of 2.1%. The inflation rate is derived from the CPI which uses a comprehensive data gathering method as mentioned earlier. However, do keep in mind that it is an average rate and depending on your consumption patterns, which are influenced by a multitude of factors, inflation impact can be different from household to household.

Over the last five years, Malaysia’s inflation rate seldom went above 3% on a yearly comparison basis and it is often much less than that, showing that inflation over the years has been well managed, making us among countries with low-inflation in the world.

Compared with other Asean countries, inflation in 2013 was higher in the Philippines (4.1%), Indonesia (8.4%) and Vietnam (6%) but Singapore and Thailand had lower inflation rates of 1.5% and 1.7% respectively.

Our low inflation factor puts us in a favourable position to implement measures to strengthen our economy including subsidy rationalisation to ensure our economy remains sustainable and able to face future challenges.

Yes, subsidy rationalisation would result in price increases but the question is how significant is the increase?

Let’s look at the December CPI. Compared with prices a year ago, prices in December were up 3.2%, definitely higher yes, but not anywhere near the alarming levels that some sectors are claiming they are at. Furthermore, figures from the Domestic Trade, Co-operatives and Consumerism Ministry show that whilst there have been price increases for some items, prices of other basic items monitored went down in December compared with November 2013 (see charts).

Even so, the Government recognises that it is necessary to keep a lid on prices. We have just concluded a multi-agency lab to look at measures to control prices and will be proposing measures to the Cabinet in six key areas – food, fuel, electricity, housing, tolls and public transport.

The Government is engaging the public and special interest groups in these efforts.

We are focusing on essentials and necessities and we have mitigated cost increases by designating key products as controlled items. We are engaging with companies and consumer groups to help keep prices down and trying to make businesses more efficient. Efficiency brings prices down.

Often, it is difficult to control inflation of imported items or factors beyond our control such as oil price increases. If you ask the people, they will want small price increases over a longer period of time.

But this is often counterproductive. What happens in practice is when prices increase, prices of other related items increase by a larger amount than necessary with those in the value chain trying to increase margins and recover increases in other costs.

In the long run, a price shock or one-off sharper increase, may be better than several steps of price increases. This is because if we are to reduce subsidies a few times, our analysis shows the compounded price increase tends to be greater than if we do it once at a higher quantum.

These are things we have to grapple with as we examine ways to dismantle blanket subsidies.

In terms of controlling prices, while we have anti-profiteering laws, it is not easy to implement this. When do we decide when prices are unreasonable?

Some people are quite happy to enjoy a plate of mee goreng at a fancy restaurant for RM20, whereas some prefer to have the food item at food stall prices.

These are choices available to the consumers. Where there is a problem, consumers can report this to the Domestic Trade, Cooperatives and Consumerism Ministry.

Moving on, we must not forget that the Government is seriously engaged in increasing incomes and creating jobs. Our ultimate goal in the Government and economic transformation programmes is to become a developed country by 2020, achieving a per capita income of US$15,000 a year. We are on track.

We are also putting in safety nets to help ensure minimal living standards for a large section of our disadvantaged public. The minimum wage measure which fixes wages at a monthly minimum of RM900 for Peninsular Malaysia and RM800 for Sabah and Sarawak will improve incomes for some 3.2 million workers. But it also means production costs increase.

In the meantime, the Bantuan Rakyat 1Malaysia or BR1M, which will be distributed again this month, provides real extra income for those who need it. Last year, this programme was enhanced by expanding the scope of recipients to single persons above 21 years old.

BR1M was distributed to more than 4.8 million households with monthly household income of RM3,000 and below and to two million single-persons above 21 years old who earn RM2,000 and below monthly.

This is BR1M’s second implementation since its introduction back in 2011/2012. A total of 4,806,500 households and 1,995,923 singles benefitted from BR1M in 2013 with the total amount of assistance at RM2.9bil.

These are not the only safety net programmes – there are at least 47 of them under different agencies and these include schemes helping very poor students, meal plans, tuition assistance, old-age assistance, educational grants and help for the handicapped.

And we will continue with plans to keep price increases in check and shield those who will be worst affected by these. But ultimately the people must play their part too.

If price increases are not warranted, they should simply look elsewhere for what they require. That will likely bring the price for the product or service down pretty quickly.

In other words, shop around to get better deals.

Datuk Seri Idris Jala is CEO of Pemandu, the Performance Management and Delivery Unit, and Minister in the Prime Minister’s Department. Fair and reasonable comments are most welcome at

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