Consumer spending habit the main driver of inflation


CONSUMER spending habit is the main driver of inflation, according to Economy Minister Rafizi Ramli. 

He said based on economic theory, when prices go up, demand should go down. But it is not the case in Malaysia.

“Demand has not gone down despite rising prices, particularly in the foods and non-alcoholic beverages category, which is also the main driver of consumer price index (CPI).

“The fact that consumers still continue their spending habits indicates that the prices are still affordable,” he told reporters at the press conference of CPI for November at Putrajaya on Dec 23.

The prices of foods and non-alcoholic beverages saw the highest rate of inflation.

“29.5% of the total weight of CPI in the household expenditure category that determined the CPI is foods and non-alcoholic drinks. 

“This is also the reason consumers feel the pinch, because one third of the goods and services that determine inflation are the same goods and services that we have day-to-day transactions,” he said. 

While consumers are complaining about the rising prices of goods and services, they still dine out and buy coffee priced at RM12 per cup, he noted.

“Although the prices of food and non-alcoholic beverages continue to soar, people continue to buy and pay at higher prices which are charged by the sellers. This, to some extent, contributes to the continued increase in the price of food and non-alcoholic beverages.

“However high the price of cooked foods from restaurants, consumers still purchase from these businesses. Many people consume coffee (at premium price) daily because of lifestyle. 

“It means consumers still can afford foods even though their prices have gone up. Also, it means, consumer spending habits and lifestyle are inelastic. 

“Unless we have more elasticity on demand and supply, the prices will continue to go up,” he said. 

Elasticity measures how sensitive a buyer or seller is to changes in the prices of goods or services. 

The more elastic something is, the more a consumer or producer is expected to shift their behaviour due to a change in price. 

Meanwhile, Rafizi said the inflation rate for November was 4%, which was the same as in October.

“From the economic perspective, 4% inflation rate is reasonable, compared to the US, the Asean region and Europe. 

“In November, the inflation rate remained at 4% because it was driven by the increase in the prices of food and non-alcoholic drinks (up at a rate of 7.3% for November compared to 7.1% the month before).  

“This increase was partly due to the increase of the price of cooked food, especially chicken-based and flour-based foods,” he said. 

It all goes back to the elasticity of demands. 

“We want to help the public to become more elastic to prices in terms of consumption habits. The government has intervened on food supply, so this category is not monopolised by certain organisations. 

“To control demand, it is a collective effort involving the government, businesses and the people. The government will work closely with different industries on the supply side and also work with consumers and the public on the demand side,” he said.

Rafizi said the ministry would develop an ecosystem to address consumer spending habits, consumer elasticity and increasing prices of food and non-alcoholic beverages. 

“We will work with Malaysian gig start-ups, influencers and the likes to address the issues. They are creative and they have accomplished works with minimal resources. They are problem solvers,” he said.