Rising cost of living draws concern


Afzanizam: Although the rise in inflation rate is marginal, the CPI level has been consistently on the way up.

PETALING JAYA: Corporate Malaysia, which is taking measures to put the country on a stronger growth path, is struggling with one of the most pressing issues - the rising cost of living.

The increase in the prices of of some essential items like food, housing and healthcare is making it difficult, especially for the low and middle income groups, to make ends meet.

Although the inflation rate has gone up marginally, the reality is that, according to economists, different households or income groups have different inflation rates.

Richard Record, the lead economist for the World Bank in Malaysia has expressed his concern on the cost of living in Malaysia.

He was reported as saying that nowhere was the disconnect more apparent than the low rate of consumer price inflation when contrasted against the rising cost of living.

Concerned: Richard Record, the lead economist for the World Bank in Malaysia, has expressed his concern on the cost of living in Malaysia.Concerned: Richard Record, the lead economist for the World Bank in Malaysia, has expressed his concern on the cost of living in Malaysia.

Despite the low and stable inflation in recent years, he said different households lived with different rates of inflation.

For example, those with lower incomes spent a higher share of their family budget on food and would therefore experience a higher rate of inflation when food prices rise faster than prices of other items, he noted.

Secondly, Record highlighted that the consumer price index (CPI) does not include costs that have a high investment component, such as the cost of buying a home.

Property prices have risen rapidly in Malaysia during the last few years, but this isn’t captured in the CPI, he said, adding that lastly, the living costs vary quite dramatically across the nation.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, who shares the same notion as Record, told StarBiz that the cost of living would continue to go up despite a marginal rise in the inflation rate.

“If we look at the inflation rate, it has risen marginally this year to 0.6% for the first eleven months from 1.0% in 2018 and 3.7% in 2017.

“Although the rise in inflation rate is marginal, the CPI level has been consistently on the way up.

“The CPI for the period stood at 121.4 points, higher from 2018 (120.68 points) and 2017 (119.53 points) level. So general price level has gone up albeit at varying degree, ” he said.

The three main component of CPI includes Food & Non-Alcoholic Beverages (29.5% of total CPI), Housing, Water, Electricity, Gas, & Other Fuels (23.8%) and Transport (14.6%).

Of these three, Transport has been declining at a rate of 1.8% and this was mainly driven by lower RON95 prices which has been kept at RM2.08 per liter since March this year.

However, some components of Food & Non-Alcoholic Beverages saw sizeable increment.

For instance, egg (7.7% in the first 11 months versus vs. 3.6% in the similar period last year) and frozen meat (1.0% versus -1.9%) etc. For Housing, Water, Electricity, Gas & Other Fuels, sub-components such as material for maintenance & repair dwelling had also registered higher prices.

He said based on the above data, it clearly shows that there is a surge in the cost of living though the headline inflation rate appears low.

“This was due to different weightage assigned to each category as the weight represents the general consumption basket in Malaysia. In that sense, there is element of averages and therefore, each and everyone in Malaysia has a different set of CPI, ” Afzanizam noted.

Judging from the marginal propensity to consume data, he said Malaysia is currently deemed as one of the highest in Asia-Pacific at 0.598 points. This would mean Malaysians love to spend and this would create rooms for businesses to take advantage, especially those who are impatient to make price comparison, he noted.

AmBank group chief economist Anthony Dass said Malaysia’s living cost is expected to rise as real wage growth would remain under pressure. For nominal wage growth to rise, he said there is a need for productivity to grow in line, if not, these costs would eventually be passed on to consumers and perpetuate the rising cost of living.

He agreed the pressure on rising living cost would be more glaring amongst the low and mid segment. Much of the impact will come from utilities, fuel, transportation, minimum wage and weaker ringgit, he said.

“All these points to higher cost of doing business. While the changing lifestyle and demographics will have some impact on the rising living cost, it will be negated by the softening consumer sentiment and tougher job market with rising retrenchment, flexi working hours, contract jobs, automation and digitalisation, ” Dass added.

Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie foresees the cost of living pressure would remain in 2020 and beyond.

“Malaysians, especially low-and middle-income living in cities are still feeling the pinch due to increases in food, housing, education and healthcare.

“The introduction of a gradual floating of fuel prices, medical consultation fees to be dictated by free market forces as well as the potential hike in water tariffs could add on to their burden, ” he said.

Lee Heng Guie: “Malaysians, especially low-and middle-income living in cities are still feeling the pinch due to increases in food, housing, education and healthcare.Lee Heng Guie: “Malaysians, especially low-and middle-income living in cities are still feeling the pinch due to increases in food, housing, education and healthcare."

What measures should then be put in place to tackle the growing pressure in the cost of living? Lee said The National Action Council on Cost of Living (NACCOL) must lay out short-to medium-term action plans to ease the burden of high cost of living covering food and necessities, transportation, healthcare, housing and education.

“Costs of living depend on two elements: prices and income. There are two sides to every pay check, that is how much you earn and how far the ringgit can go, whereby the purchasing power is influence by both domestic and imported cost.

“The “income-based” approaches helping to alleviate the burden of rising cost of living and raise the incomes of the poor through targeted cash transfers, tax breaks, and minimum wage and targeted subsidies for important goods and services, including freezing of toll rates hike and unlimited rides on public transport, ” he said.

Lee felt the government should at the same time gradually wean the vulnerable groups from over-dependency on subsidies and cash assistance given it is fiscally unsustainable.

“While this “income-based” approach sits firmly on the government’s policy interventions, a reform of “cost-induced” policy distortion would help to tackle the cost aspects contributing to rising of living costs. Some of the Government, state and local governments’ regulations and interventions raise living costs for the vulnerable groups both directly and indirectly.

“In tackling the issues of cost of living, we must create a level playing field of competition across the supply chain of goods and services that exert influences on final prices, ” he said. Dass said since discussions on the inflation rate not reflecting the rise in the cost of living, the government is working on developing a new index that can provide better accuracy on the cost of living.

“This new index can be used alongside the inflation rate to improve efforts in addressing the rising cost of living and the diminishing real wage increase, ” he added.

Addressing the higher cost of living also requires a holistic approach, he said.

“Wages need to grow in line with productivity. Besides, there is a need to review some of the regulations and compliance policies that stifle competition and lead to higher prices. Industries must be encouraged to invest in higher value-added, technology-intensive and skills-based production. There is a need to address the involvement of middlemen who tend to create price distortion and price discrimination, ” Dass noted.

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