Cost of living worsens with Covid-19

Raw material, wages, maintenance, contributed to higher costs of biz

by RAHIMI YUNUS / pic by RAZAK GHAZALI

THE cost of living has risen in tandem with increasing average food prices, while the loss of hundreds of thousands of jobs throws lower-income households into greater financial pain.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the food and non-alcoholic beverages group in the Consumer Price Index (CPI) has been persistently recording positive increases.

Consequently, he said food prices, which are the main component in CPI, will continue to affect all Malaysians irrespective of income levels and jobs.

Mohd Afzanizam told The Malaysian Reserve that multiple factors have led to the rise of the cost of living, including the higher cost of businesses which then transmitted to the end consumers.

He said raw material, wages, maintenance, and other overhead costs contributed to higher costs of businesses.

“Given that Malaysians are generally price takers, the transmission can be very effective. In other words, whatever price level set by the businesses will be most accepted by the buyers. This will allow prices to go up,” he added.

“Fuel prices are the main driver of rising inflation. We can see this in last year’s CPI when it fell by 1.2%. Despite that, the prices of other goods and services are pretty much stable, and in fact, rising. This is reflected in the core CPI which continues to sustain a 1.1% increment during 2020 and 2019. This is also very much in line with the notion that prices are sticky downward as a thought in Keynesian economics,” Mohd Afzanizam said.

CPI declined 0.2% in January 2021 to 122.1 against 122.4 in the same month of the preceding year, according to the Department of Statistics Malaysia data.

The decrease in the overall index was attributed to the decline in transport (-5.1%); housing, water, electricity, gas and other fuels (-0.7%); clothing and footwear (-0.4%); and restaurants and hotels (-0.1%) which contributed 44.5% to the overall weight.

Still, food and non-alcoholic beverages increased by 1.5% to 136.1 compared to 134.1 in the corresponding month of the preceding year. This group contributes 29.5% of CPI weight.

Although year-on-year CPI decreased, CPI on a monthly basis increased by 1.2% compared to December 2020.

The increase was attributed to transport (3.7%); housing, water, electricity, gas and other fuels (2.6%); furnishings, household equipment and routine household maintenance (0.3%); and food and non-alcoholic beverages (0.2%).

Universiti Utara Malaysia senior lecturer Muhammad Ridhuan Bos Abdullah said households now have to spend more to get the same quantity of goods and this can be seen in meat and milk products.

He said the import cost of components is the factor that drives the prices as local production could not meet the demand.

The economist said the new norms whereby households use third-party facilities such as food delivery services also contributed to the relative rise in food and beverages (F&B) cost.

“It is interesting that the use of food delivery has spread to suburban and rural areas. F&B is the largest group that caused inflation besides health. The rest is education where now gadgets become necessities for better education access.”

He said the middle 40% are the most affected because the variant of goods and services are more targeted to the group compared to the bottom 40%, who have received a host of formal or informal assistance, and the top 20% with a much higher disposable income.

He said the best short-term policy is that the government provides incentives to critical subsectors, such as F&B importers, and helps domestic manufacturers increase their production.

Citizens in Malaysia, Thailand and Vietnam showed a weaker economic recovery sentiment compared to other regional countries after the resurgence of Covid-19 in the past few months, according to a study by Ipsos Group SA.

The study found that there was a decline of 21% from September 2020 among respondents in Malaysia who said the current economic situation in the country was “good”.