Review CPI basket to benefit lower income groups


THE representative components of the consumer price index (CP) should be urgently reviewed to better reflect the dire economic situation faced by the bottom 40% (B40) and M40 groups, says economic analysts and researchers.

The current components of the CPI, which measures the overall change in consumer prices based on a representative basket of goods and services over time, is no longer an effective barometer and could instead lead to misplaced measures that would be counter-productive for the targeted lower-income group.

DM-Analytics Sdn Bhd senior researcher Zouhair Mohd Rosli said the headline CPI is only meant to show overall changes in price of consumer items, regardless of the consumers’ spending class.

He said that while there are a total of 833 items included under the index, an average person does not buy all the 833 items on a monthly basis.

CPI, he added, is just an indicator of changes in price and even if inflation becomes stable in the future, Malaysians will still continue to struggle in order to meet their needs.

“Minimum wage remains inhumane, the economy continues to benefit big corporations while keeping workers’ wages low, and decent jobs with good pay are harder to get nowadays with 1 in 3 graduates underemployed.

“The numbers of struggling households are high, ranging from 6 in 10 at Kota Bharu and 3 in 10 households in Selangor,” he told The Malaysian Reserve (TMR) when contacted recently.

According to Zouhair, although the price of rice, the nation’s staple grain, increased by only 0.3%, and sugar by merely 0.2%, from December until June 2022, people do not “eat rice with sugar as curry three times a day.”

However, he added, the price of other food items are on a steeper trajectory.

“Meat went up by 5%, milk powder and other dairy products went up by 3%, and bread and bakery products increased by 3.2%.

“Eating outside is becoming much more expensive, with an increase in overall price by 4.8%,” he noted.

The situation is even worse in Klang Valley.

“Cooking oil went up by 21.4% and chicken price increased by 6.2%. Other daily meals also experienced ridiculous increase in price: chicken rice went up +7.3%, teh tarik (+8.2%), roti canai (+8.2%), fried rice (+8.0%), fried kuey teow (+7.9%), and fried bee hoon (+10.4%),” he noted.

Zouhair stressed that all these food items inflation is a stark contrast to the headline inflation which recorded only at 2.3% during the same period.

He added that inflation is going to affect low-income households the most, as they allocate the highest proportion of their expenditure on foods.

“The bottom 5% (B5) households spend about 36% of their income on food.

“In contrast, the top 10% (T10) households allocate only about 21% of their income on food, despite spending five times higher than the B5 households,” he noted.

In terms of making sure that the targeted subsidies are reaching the right group, Zouhair said the government should remove fuel subsidies for the rich, as this will save the country about RM20 billion.

He added that the government should then channel this benevolent savings to 80% of the households.

“This is equivalent to RM271 per month for 6 million households for one whole year.

“Call it to help low-income households to survive during this tough period. No assistance in the history of Malaysia would ever match this,” he said.

Echoing similar views, Universiti Tun Abdul Razak (UniRazak) economist Prof Emeritus Dr Barjoyai Bardai told TMR that the CPI is quite shielded as it is not the true index which reflects the situation of B40.

He noted that the true price index has to be calculated without subsidies and the actual inflation rate would have been around 11.5% which may reflect the true consumer price.

“For the B40, we need to perhaps look in detail because their consumption pattern may be a little different compared to other groups.

“We must also bear in mind that for B40 almost 100% of their income is spent on monthly expenditure and almost 40% of their income will actually go into food.

“So, they will feel that there’s more pressure because of the sudden increase in the prices of food,” he said.

Dr Barjoyai noted that even though the price of rice and sugar in Malaysia have been similarly fluctuating in the past six months, it remains under control.

He emphasised that the problem right now is that the government does not have the microdata to analyse the data of each individual household in Malaysia.

“For example, when the government set up the MySejahtera application, they made sure that all citizens have a MySejahtera account.

“I think that is already a good set of basic data, which can be expanded to cover other household aspects such as income, expenditure and so on.

“So, if the government can do that, they can pinpoint which group or which particular household in the economy needs help,” he said.

Meanwhile, Hargapedia CEO CK Soon also agreed that the CPI data does not match the reality of B40 households and they should review what is used to benchmark on groceries.

He added that for B40, the groceries could be easily 20% to 35% spending of their income.

“We also should not forget the shrinkflation where products reduce size with the same price, that’s another form of price increase which is not tracked,” he told TMR.

Soon noted that he did not see the prices of rice and sugar increase much and it has been relatively stable and healthy for the past three to six months.

However, if the price is compared to ten years ago, he said there has been a definite increase.

Soon also emphasised that people should be informed and research on how to save some cash when it comes to coping with rising food prices.

“I strongly believe that instead of keep giving fish, the government needs to teach people how to fish.

“Subsidies are not a long-term solution. People need to be informed and shown how to save themselves. They can use information which is widely available online to check if a product is on promotion before purchase.

“Our tracking shows that purchase on promotion can easily save 30% or more. And promotions happen regularly offline and online,” he noted.

Malaysia’s inflation, as measured by the CPI, increased 3.4% in June 2022 from a year ago, led by the rise in food prices of 6.1%, said the Department of Statistics Malaysia (DOSM) on July 22.

The country’s CPI rise accelerated to 3.4% last month compared with the 2.8% year-on-year increase in May.

Food index increased 6.1% and remained as the main contributor to the rise in inflation during the month of June 2022.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the prices of chicken, which is the largest weight in the subgroup of meat (46.1%), increased 17.2% compared with an increase of 13.4 % in May.

He added that the average price of processed chicken in June was RM10.02 per kilogramme compared with RM8.55 a year ago, in line with the increases in global food production inputs such as maize (14.8%), wheat (60.9%) and soybean (19.9%), which are the largest compositions in the preparation of chicken feed.

Putrajaya saw the highest level of inflation among states and federal territories in the country at 8.1%.

Labuan and Melaka saw the lowest rates at 2.5%.