Stocking up: Consumers can look for cheaper substitutes or cut back on discretionary spending to face rising food bills. — FAIHAN GHANI/The Star
PETALING JAYA: The public best recalibrate their spending and consumption as Malaysia reported its highest food inflation in over a decade in May, with economists projecting a continuous increase in food bills.
In May, Malaysia recorded a 2.8% year-on-year (y-o-y) increase in the consumer price index (CPI), which measures inflation.
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The rise was on the back of food inflation which rose to a new high of 5.2%, the highest since November 2011.
Sunway University Economics Professor Dr Yeah Kim Leng said while rising food and fuel inflation is a global phenomenon that has resulted in the US and European economies facing consumer inflation of above 7-9%, Malaysian consumers have not faced the full brunt yet due to government-controlled prices and subsidies for essential food and fuel items.
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“Nevertheless, inflationary pressures in the domestic economy arising from high import costs, the weak ringgit, production cost increases and global shortages of selected goods are getting stronger,” he said.
The CPI has edged up to 2.8% and will likely rise in the coming months, but the increase is not as sharp compared to countries where the governments do not control the prices of essential items, he added.
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However, Yeah said such subsidies are very costly and unsustainable if food prices remain high.
On that note, he said the government has little choice but to shift to a more targeted subsidy system.
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“The challenge is to find the right balance in the sharing of the rising cost burden between the government, consumers and producers.
“Consumers should expect some upward adjustment in prices so that the subsidy burden does not jeopardise the government’s fiscal position, to the extent of triggering a fiscal crisis.
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“Nonetheless, the price adjustments and subsidy removal should be done gradually so that they do not result in an inflation spiral nor cause production cutbacks and supply shortages due to prices being too low to be economically viable,” he added.
On consumers’ part, he said they could explore cheaper substitutes, cut back on discretionary spending or reduce consumption to face rising costs of affected items in the consumption basket.
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The government, on the other hand, would need to ensure adequate production and supply through facilitative policies, including subsidies for producers and importers that are targeted and temporary, to overcome the shortage of affected food items.
“Feasible import substitution with local production such as maize and oil palm waste for animal feed could be incentivised as a complementary food security and agricultural growth strategy,” he said.
Yeah said the looming global food crisis also presents an opportunity to accelerate private investment in modern food production and sustainable food agriculture, such as what has been successfully done in the rubber and palm oil industry.
Head of research at the Malaysian Institute of Economic Research (MIER), Dr Shankaran Nambiar, said more clarity is needed on government’s moves such as raising the ceiling price of chicken and removing subsidies for breeders – the savings from which in turn would be channelled to the people who are in need.
“The overall message is that the government wants to embark on a policy move that will directly assist the economically weaker sections of society with their food bill, without disrupting the play of market forces,” he said.
“A targeted approach is a good idea, but food inflation is definitely going to go up. This will affect consumers both in the Bottom 40 (B40) and Middle 40 (M40) groups, probably bringing some in the lower quantiles of the M40 group into a lower income category,” he added.
Shankaran said the discontinuation of the subsidy for bottled cooking oil will raise the cost of home-cooked meals as well as those bought from food outlets, adding that this may also negatively impact restaurants and street vendors.
“There is no doubt that subsidies are not a good thing, but this may not be the best time to dismantle them.
“Cash handouts will counteract the withdrawal of subsidies, but consumers who have been practising poor financial management may not allocate the compensating disbursement appropriately,” he said.
To illustrate his point, Shankaran said the RM100 cash aid could be spent on essential food items instead of buying durian.
He noted that households, especially those who spend a big portion of their money on food, will definitely see their budgets being stretched.
“The real income of households will further go down with the current price increases,” he said.
He added that other mechanisms the government could look into would be to replace middlemen and get existing agencies to supplement their roles.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said he believes food prices will continue to rise as the country is also dependent on imports for domestic consumption.
“The import inflation would contribute to the food inflation,” he said.
Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the consumption subsidy expenditure of RM77.3bil so far for 2022 is the highest subsidy in Malaysia’s history.
The projected consumption subsidies cover petrol, diesel, liquefied petroleum gas (RM37.3bil), cooking oil (RM4bil), flour and electricity to reduce the people’s cost of living, and subsidy bills (RM9.7bil), excluding welfare aid from 2018 to 2022.
