Source: Selangor Times

inflation: When the general level of prices for goods and services rise, and, subsequently, purchasing power falls.

By Alvin Yap

Homemaker Ann Looi budgets RM1,500 at the start of every month to purchase food and other items.

The 35-year-old housewife and mother of two, however, finds it increasingly difficult to get by with less than RM2,000 to place food on the table every month for her family of four.

The Johor Baru native does not care about keeping up with her neighbours’ life-style,explaining that she has her hands full keeping up with dearer food prices.

Families in urban centres are finding it hard to get by on the wages levels that have stagnated for a few years now, says the part-time dressmaker.

Economists and comsumer groups like the Federation of Malaysian Consumers Associations (Fomca) say that middle-income groups in urban centres are being hit hard by stagnant wages and increased living costs.

Inflation,they say,is as certain as death and taxes.

But what is inflation? Economists define it as the rate at which the general level of prices for goods and services rise, and, subsequently, purchasing power falls.

” Inflation is a general increase in the prices of items so that we buy less with our money compared to a time, say, five years ago”, explains lawmakers Charles Santiago,who says that Malaysian wages have not increased to keep up with the rising cost of living.

The Klang MP explains that as prices increase for items, each ringgit unit buys fewer goods and even services.

Consequently, the former economics and finance lecturer points out that inflation reflects a ” lowering” of purchasing power of money.

He explains that an increase in inflation means that the ability of our ringgit to buy specific quantities is lessened.

Giving an example, Santiago says that in 2000, RM10 could buy three chickens,while the same unit of money today can only get the shopper one and a half chickens.

To put it another way, he says a prospective car buyer would have to fork out, for example, RM50,000 to buy a compact-sized car this year, when it was only RM47,000 last year.

The first term MP explains that price increases are a burden to every worker whose salary is not only fixed but also stagnated.

Malaysian are getting a raw deal, he points out, as inflation is exercerbated by wage levels that have stayed flat over the years.

“Increasingly, business are passing on the costs of goods to consumers whose wages are the same as it was 10 to 15 years ago”, says Santiago, a trained economist.

He says economists unflatteringly call inflation the ” Big Squeeze”, and the description, while unsophisticated, is quite apt.

Families, he explains, are facing the burnt of rising costs of living, with wage increases nowhere near enough to keep up with dearer goods and services.

Santiago, who heads a non-governmental organisation think tank, says that families ” feel the squeeze” when they fill the fuel tank in their car, or when they go shopping for clothes, food, or when they pay their utility bills.

What causes inflation?

Santiago says supply and demand- that is a greater demand for items will push prices up due to limited availability- can no longer account for a marked increase in prices.

He takes the most essential item -food- to illustrate how inflation is no longer solely caused by supply and demand, but by external factors.

Santiago says the public at large does not know that food prices globally have skyrocketed due to climate change, monopoly on food production, and agriculture policy that is weighed towards producing cash crops.

” Firstly, climate change is destroying land that is suitable for agriculture. There is less arable, fertile land for planting paddy, wheat and other staple food source”, Santiago explains.

He says monopolies and cartels are also selling essential food items like rice, wheat and soy at higher prices to maximise profits.

International agriculture corporations,Santiago says, have put profits ahead of feeding ” a hungry world”, as they, instead of governments- who should do more to eradicate hunger and poverty-determine the prices.

In Malaysia, the problem of ballooning food prices is due to dependence on food imports as agriculture is slanted towards producing cash crops like oil palm and rubber.

” We are net importers of rice, vegetables and other staple food ingredients as we don’t produce sufficient amounts”, Santiago says, adding that Malaysians are at the mercy of foreign food producers and their profits-oriented prices.

A reduction in our food import bill, he says, can only be addressed by a return to food-producing agriculture.

Fomca says middle-income and lower-income families are increasingly in debt due to outstanding payments incurred from paying for essential items such as food, petrol and utility bills.

According to the centre’s research and policy advisory committee, inflation touched 3.3% in August 201, making essential items dearer to purchases.

According to Fomca’s Datuk Paul Selvaraj, households now use more than a third of their income just to purchases food, fill the car with petrol, and pay electricity and water bills.

” In Some households, families are using half of their income to pay off debts incurred from mortgages, rental, car ownership and food purchases,” says the consumer advocacy group’s chief executive officer.

Selvaraj says it is alarming to note that inflation, among other things, has caused households to spend more to purchase essential items.

According to Bank Negara’s Annual report 2010, household debt at the end of 2010 was RM581 billion, or 76% of Gross Domestic Product (GDP).

Selvaraj says the figure is worrying, as it signals that households are using as much as half of their incomes to pay off debts.

According to the central bank’s statistics, the Malaysian household debt service ratio was 39.1% in 2006, rose to 49% in 2009, and dropped slightly to 47.8% in 2010.

” This means that after paying off the debt there is not much left to spend on education, and especially during medical emergencies and savings,” he says, adding that homes will find it hard to make ends meet if breadwinners fall sick or lose their jobs.

” That is the issue with inflation. It affects everyone, especially wage earners and households.” says Selvaraj.

He says the federal government should do more to ensure that basic items such like food, petrol, telecommunications and transportation charges do not rise too much due to inflation and profiteering.

A nuclear family of four, Selvaraj says, spends a lot on food, adding that petrol and transportation costs also factor in household spending.

Fomca updates its weekly record of prices for essential items, and Selvaraj notes that a whole dressed chicken now costs RM6.70/Kg at hypermarkets, while green vegetable s cost around RM1.50/kg.

Selvaraj says consumer groups like Fomca want to educate and inform the average consumer to spend wisely.

Like Santiago, he acknowledges that market forces of a global nature are driving prices up. He urges the public to do their part in spending wisely.

Selvaraj says prices were ” very much influenced by external factors”, but nonetheless wants the people to play their role in facing inflation.

He says the short to medium-term plan is to educate the public on sustainable purchases, explaining that people have to practise an economical way of life and strive to be frugal.

However, the government should not adicate its responsibility to protect the poorest from the burden of price increases.

He says the government needs to take action, including using the Price Control Act and Anti-Profiteering Act, to curd profiteering.

Recently, he called on the government to take stern action against traders who raise food prices following last month’s increases in egg price by two sen.

Fomca and other  advocacy groups, notably the Malaysian Trades Union Congress (MTUC) -Which speaks out on workers and wage issues-have said the government must do more to tackle inflation.

Selavaraj says the 2012 Budget tabled recently in Parliament chose to continue with subsidies, as their removal would hit the middle and lower income groups the hardest.

He points out that rising inflation cannot be kept at bay, and the government should implement a wage floor of RM1500 so that the public can cope with living costs.