Malaysia and China intend to collaborate to tackle inflation

IN JUNE 2022, the Statistics Department of Malaysia revealed that Malaysia’s annual inflation rate, as measured by the consumer price index (CPI), rose to 2.8% in May 2022 from 2.3% in the previous month.

This inflation rate is the highest recorded percentage since December 2021. Food prices increased by 5.2%, the most since October 2011, amid rising commodity prices.

The increase in food inflation, which contributes the highest weightage to the overall weight of the CPI, remained a major contributor to inflation.

According to UOB Asset Management Malaysia chief executive officer Lim Suet Ling, Malaysia's inflation is predicted to be continually high at least into the third or fourth quarter of the year, before beginning to decline.

The inflation that is happening today is generally due to a few reasons. It is mainly caused by the Covid-19 prevention lockdowns and Russia’s conflict with Ukraine.

The Russia-Ukraine conflict has resulted in higher commodity prices, along with higher oil and food prices. The worldwide Covid-19 prevention lockdowns, which lasted for a couple of months, have resulted in severe supply chain issues.

In Malaysia, food inflation has a negative impact on various economic sectors, including producers, suppliers, sellers, and consumers. Those in the B40 group who face rising expenditure due to food inflation bear an additional burden. As a result of food inflation, most sellers need to mark up prices to cover the cost of production.

This decision is difficult for sellers as they risk losing customers. Sellers opined that not all customers understand the issues associated with inflation. That is the reason customers sometimes blame sellers for the price increases.

However, the customer may not be entirely wrong. Some sellers appear to take advantage of this period of inflation by arbitrarily raising prices. Even though the price of the raw materials has fallen through various government initiatives, sellers continue to charge a high price for their output.

In economics, a ceiling price is set to overcome inflation which will benefit producers, suppliers, sellers, and buyers. The government sets a ceiling price to avoid high food prices. Usually, the government will take necessary action by introducing a flexible ceiling price that changes according to the price of input factors.

It is worth noting that the price of raw materials does not always increase even though a country is facing inflation. However, there are some sellers who continually increase prices although the price of raw materials has decreased.

Having said that, inflation in Malaysia has not reached a critical stage and there is opportunity to recover from it. This does not mean that various ministries should not take any action to handle this issue.

The Finance Ministry has undertaken several actions to control inflation such as introducing targeted subsidies for selected products including cooking oil, petroleum, chicken, eggs, and electricity bills.

The implementation of ceiling prices and subsidies are known as part of government intervention. It is important for everyone involved to build up a good circular flow of economic activity.

The Malaysian Government is very committed to overcoming challenges and issues, including inflation. However, instead of just undertaking domestic policies, inflation can be overcome and controlled through a good relationship between Malaysia and China.

Recently, China, through the Chinese State Councillor and Foreign Minister Wang Yi, paid a courtesy visit to Putrajaya. They agreed to strengthen bilateral cooperation with Malaysia by tackling current challenges such as global inflation together.

This visit is significant because it showed that China always prioritises foreign relations with Malaysia, not only within the Asean region but across the world.

The Malaysian Government believes that China can handle this inflation issue because the China government is very good at communicating future policies and has clearly stated that it is more concerned about improving economic growth rather than cracking down on mild inflation. Moreover, the Chinese economy is continuing to recover after the Covid-19 pandemic ravaged it.

Throughout Wang Yi’s two-day official visit to Malaysia, Datuk Seri Ismail Sabri Yaakob also discussed strategies to strengthen bilateral relationships and develop the digital economy.

For him, this matter is relevant since countries across the world are heading toward and implementing IR4.0 which is important for a country’s growth and development. He also welcomed the interest of more official delegations and businesses from China, such as Huawei, to be involved in government initiatives.

A good relationship between China and Malaysia can be maintained as both countries have always supported each other, even through difficult times like during the Covid-19 pandemic.

Hence, it is believed that the bilateral relationship between Malaysia and China will continue to grow stronger and closer through the years.

Additionally, most producers and suppliers source their products from China. Hence, a good relationship is really needed to convince traders from both countries to continue their trading activities even though the entire world is facing inflation.

Notably, the number of imports and exports of Malaysia and China products is still high. Malaysia and China have always trusted each other, which is important to sustain economic growth in both countries.

In conclusion, a good relationship is vital for both countries to determine new directions, set new goals, plan new priorities, strengthen safety and security and bring the development of bilateral relations to the next stage.

Dr Nur Syafiqah A. Samad is a Senior Lecturer at the Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.