Although fuel prices have come down, many still feel the pinch from the dramatic rise in the cost of goods. While the authorities predict prices will fall next year, consumers continue to tighten their belts.
LIKE many Malaysians, Iskandar Mohd Hanif, 53, feels the pinch when he is shopping for groceries. The increase in fuel prices in June led to a dramatic rise in cost of products and services.
Fuel has since become cheaper but there doesn’t seem to be a resultant drop in prices of other goods. For this reason, Iskandar rarely misses promotions at hypermarkets to buy essentials.
“Prices always go up but they never seem to come down,” he laments.
Ratings Agency of Malaysia (RAM) Chief Economist Dr Yeah Kim Leng says prices are a “sticky downward” variable.
This means that they won’t drop even if conditions dictate that they should.
Even if prices are falling, the drop is very gradual. This is reflected by the inflation measuring Consumer Price Index (CPI) after the month of May. The CPI stood at 3.8% in May but it shot up to 7.7% in June.
The CPI peaked in July and August at 8.5% respectively, a 26-year high. In September, October and November, the CPI came down to 8.2%, 7.6% and 5.7% respectively.
“The CPI inflation more than doubled in June following the spike in fuel prices. The sharp fall in fuel prices has caused the CPI to decrease. Prices are coming down now, although at a slow rate,” says Dr Yeah.
Dr Yeah adds that the demand for goods meant that prices would not drop immediately although the decreasing CPI rate meant that they were easing.
“This is a good sign and we can expect this trend to continue,” says Dr Yeah, adding that consumers could probably enjoy lower prices in the middle of next year.
Paul Selvaraj, the chief executive officer of the Education and Research Association (ERA) for Consumers Malaysia, says prices of things have not come down, based on 33 essential items monitored since the end of September in three hypermarkets in the Klang Valley. The results of his survey will be released soon.
“The prices are fairly constant or going up slightly. No matter what anyone says, prices are driven by market forces. If they do come down, it might be the result of a promotion,” he says.
Even Domestic Trade and Consumer Affairs Minister Datuk Shahrir Samad admits that the Ministry does not have any legal powers to ensure that prices drop but he is confident that food manufacturers will start lowering their prices from early next year.
The Federation of Malaysian Consumers Association (Fomca) does not expect prices of things to come down right away. Fomca has surveyed restaurants around Klang Valley but has yet to see any of them lowering prices.
“If the reason for the price hike is due to fuel prices in the first place, then by right food prices should fall as well. But the reality is that profit is the crux of any business. So unless there’s a law that says they must do so, almost none will do it voluntarily,” says Fomca President Datuk Marimuthu Nadeson.
He adds that operators can always argue that the price hike is due to something else, like costly supplies rather than a direct impact of rising fuel prices.
“When you look at it in a broader picture, there are many players in the chain, ranging from food ingredient supplies, rental, utilities, logistics, etc. which increase operating costs. Most operators don’t isolate their costing to one particular item but spread it out to cover for overall costs incurred,” says Marimuthu.
Consumers Association of Penang (CAP) President S.M. Mohamed Idris says the association conducts a market survey every week to check on the prices of goods. Based on feedback from traders, retailers, wholesalers and suppliers, the prices of raw essentials have not come down.
“They expect prices to go down over the next few months. The stocks that they have need to be disposed of first. Because they bought the stocks at a high price, they are unable to reduce prices now,” he says.
So far, 17 hypermarkets, supermarkets and stores have joined a price-cut campaign to encourage consumer spending. For example, Tesco has offers on 50 products while Giant and Carrefour have more than 1,000 products on a similar promotion. Mydin has offers on more than 300 products.
The promotions can be viewed in newspapers and on hypermarkets’ websites. Price comparisons of several items according to region, are available on the Domestic Trade and Consumer Affairs Ministry’s website (www.kpdnhep.gov.my). These prices are updated daily.
A Tesco spokesperson says the company is focusing on fresh food as consumers are cutting back on eating out and reducing purchases of non-essential items.
“One area where customers are not prepared to compromise, is getting fresh food at the dining table,” says the spokesperson, adding that the items ranging from fish to vegetables have seen price decreases of between 9% and 47%.
Carrefour claims its price-cut campaign was in response to the recent reduction of petrol and diesel prices, with 75% of items on offer being food products.
While hypermarkets are promoting their price cuts, the general perception on the ground is that it’s just rhetoric. Selvaraj says the promotions can’t be taken into account as the prices of certain items dip for a while before going up.
“This is a distortion, and doesn’t really speak of any price trend. All these promotions are to attract people to shop there. They know people are going to fill up their trolleys,” he says.
Muslim Consumers Association of Malaysia (PPIM) director, Noor Nirwandy Mat Noor Din is not convinced by the lists of products on offer by the hypermarkets. He believes that most items are non-essentials.
“Are cosmetics, chocolates and biscuits essentials? How can we ensure that the customer will benefit as almost 80% of the products don’t reflect consumer behaviour?” asks Noor Nirwandy.
Idris believes that offers or sales are only for 10% of the goods displayed.
“When you shop at the supermarket or hypermarket you end up buying things that are normally priced even if you need them or not. Hypermarkets and supermarkets manage to dispose of their stocks more easily and faster,” says Idris.
Federation of Sundry Goods Merchants Association of Malaysia chairman Lean Hing Chuan says the prices of canned food have come down by about 5% but little else has dropped.
“Suppliers claim that their overheads have increased, citing electricity and gas. The cost of transportation itself has come down only a little,” he says.
A sundry shop owner who only wanted to be known as Yong says that some suppliers blamed increased salaries.
According to Yong, the price of some items will still go up. A 3kg pack of soap powder cost RM7 a few weeks ago but a 2.7kg pack is now priced at RM10.
It is the same for baby formula. A one-kg pack used to cost about RM40 but a 800g pack now costs RM50. Yong says toiletries are also expected to cost more next month, and toothpaste is set to go up by 8%.
Dr Yeah says the “sticky downwards” phenomena happens because industries and businesses don’t face sufficient competitive pressure.
“Why lower prices when they can reap more or maintain existing profit margins. It is imperative for the Government to increase the intensity of competition,” says Yeah.
Mydin Hypermarket managing director Datuk Ameer Ali Mydin says price reductions will eventually affect profit margins.
“The suppliers are still selling at the same prices except for a few items such as rice which is a controlled item anyway,”
Ameer says the food market in Malaysia is monopolised by a few large companies which can increase prices at their whims and fancies.
“There is not much of a choice, although prices are expected to go down in the next few months,” he says.
Noor Nirwandy concurs with Ameer. He says the distribution system of products should be looked into.
“The system has been there for ages. A few individuals and small groups dictate the market,” he says.
Noor Nirwandy says there are many small and medium enterprises (SMEs) which manufacture quality products but their goods don’t find their way to the shelves.
“The products are cheaper but it is hard to find them. The system doesn’t support their products. It is not about manufacturing a product but about manufacturing a brand,” he says.
He reckons that this is the reason why many multi-national firms don’t reduce their prices, adding that they are strong enough to sustain their business.