Address rise in goods and services’ prices, purchasing decline worrying

DoSM data shows income levels and income growth slower than overall inflation, with Malaysians paying more for 10 of 12 main items


ECONOMISTS have shared their worrying takes on the latest data concerning Malaysia’s household consumption purchasing power, which projected a 16.7% decline in over a decade.

Economist Dr Nungsari Ahmad Radhi said the worrying notion in the recent Department of Statistics Malaysia (DoSM) report is apart from the overall decline in purchasing power, food purchasing power has declined even more.

“That is serious. We import quite a bit of our food and here we see that global food prices have been rising faster than domestic income.

“As a whole, prices of goods and services have increased faster than income over the period where purchasing power has declined, which is consistent with what we already know — that income levels and income growth in Malaysia have been slow. This data shows that it is slower than overall inflation,” he told The Malaysian Reserve (TMR).

On the two categories of goods and services where purchasing power improved, namely communication (102.6%) and clothing and footwear (107.0%), Nungsari said that is in line with the global trend.

“Consumer electronics, as technology progresses, has fallen in prices. Prices of those things do not increase as fast as income.

“Clothing and footwear are results of globalisation. These are mostly imported and as companies relocate production to cheaper locations, Bangladesh and China for example, prices have not increased as much,” he explained.

Academy of Sciences Malaysia fellow Dr Madeline Berma noted that the Consumer Price Index (CPI) is widely used to measure inflation or deflation and, by proxy, of the effectiveness of the government’s economic policy.

“The DoSM data reveals that Malaysians had to pay higher prices for 10 of the 12 main items. As mentioned, the CPI in 2020 showed that there had been an increase in the rate of inflation, which led to an increase in the cost of living and a decline in the standard of living in the long run.

“A high inflation rate can hurt the economy since everything costs more, manufacturers produce less and may be forced to lay off workers,” she told TMR.

She added that a decline in the CPI showed that more efforts need to be done to address the decline in purchasing power, reduce the cost of living, adjust the minimum wages and people’s eligibility levels for certain types of government assistance, such as welfare support and social security.

According to DoSM chief statistician Datuk Seri Dr Mohd Uzir Mahidin, the inflation gap between urban and rural areas widened since 2014 and continued to increase up to 3.4 index points in 2020.

The main groups that recorded lower purchasing power in urban areas were health (20.1%), restaurants and hotels (25.3%), food and beverages (27%) and alcoholic beverages and tobacco (39.8%).

These groups also contributed to the lower purchasing power in rural areas at 16.9%, 20.1%, 21.6% and 42.7% respectively.

Although the inflation in 2020 was negative, the inflation for food and beverages remained in a positive position at 1.3%, the lowest inflation rate recorded in a decade.