Inflation in Malaysia
Inflation in Malaysia
Inflation in Malaysia
general price level of all goods in an economy for a specific time period. It is
measured by the increased in CPI. The rate of inflation is measured by the rate of
increase of price index, CPI. High inflation is undesirable as it erodes the purchasing
power of money that causes a drop in real income (and thus a drop in an
individuals standard of living), the weakening of a countrys currency, and a decline
in long-term economic growth.
100
CPI0
Negative Inflation is Deflation
TYPE OF INFLATION are demand-pull inflation and cost-push inflation.
According to Fisher, demand-pull inflation is too much money chasing for too few
goods. It is the situation that aggregate demand is exceed the aggregate supply at
full-employment, thus causes to shortage of goods and price hike.
Fishers equation
MV = PT
where,
M = money supply
V = velocity of money in circulation
P = general price level
T = total transaction of outputs
V and T are assumed constant; therefore, increase in Money Supply, the Prices
will also increase thus create the inflation.
Inflation also may effects the production of goods increases. As the prices
increase, therefore the producer will take this opportunity to increase their
production to maximize profit. Other than that, savings depreciated in value which
equivalent to lower purchasing power of money. Deficit in balance of trade is
another effects of inflation. As the domestic price increases and it become less
competitive in the international market.
economy have only been taken after exhausting efforts to reduce price pressures in
other ways. Policy instruments for managing the level and direction of investments
have generally been preferred to raising interest rates. Reducing inflation however
has costs in lost output and unemployment during the adjustment.
competitiveness against countries that are forced to spend large amounts of money
to import these resources. Yet as history has often proven to us, this is seldom true
and countries with natural resources are often plagued with a resource curse which
leads to corruption, wastage, and mismanagement of the economy. Topping the list
are countries like Russia and Venezuela that though are rich in natural resources are
plagued with economic mismanagement.
Amidst the financial crisis, the inflation rate increased from 2.7 per cent in
1997 to 5.3 percent in 1998 (SyarisaYanti, 2002). The increase in food prices was
the main reason for the rise in the inflation rate, as food items accounted for 34.9
per cent of the weight in the overall Consumer Price Index (CPI) basket. Increase in
the prices of controlled imported essential items such as sugar, cooking oil and flour
was roughly 20.0 per cent. The local trader has taking the advantages to increase
the price of good due to the reason of oil price increase. The value of ringgit has
turn down and lowering its value because of the local traders act. By increase the
price of good, the value that previously can buy good in certain quantity, has goes
down that only by the same good but in the less quantity than before.
In Indonesia, a second IMF agreement in January 1998 set out in more detail
a program designed to prevent an economic contraction, contain inflation to 20 per
cent in 1998 and move the current account from deficit into surplus. The agreement
specifically mentioned the elimination of support to the aircraft industry and the
National Car project, the restriction of the BULOG (Indonesia's food distribution
agency) trade monopoly on the import of rice, deregulation of domestic trade in all
agricultural products, including cloves (a major ingredient of Indonesian cigarettes)
and the dissolution of cartels in the important cement, paper and plywood
industries. The Government also agreed to phase out energy subsidies by gradually
increasing the price of fuel and electricity, but limiting price increases for kerosene
used for domestic cooking.
The most immediate and widespread effect of the economic crisis on the
people of Indonesia has been accelerating inflation. During the first half of 1997,
Indonesia was experiencing particularly low inflation (2.6 per cent), but the price
increases of the second half brought annual inflation for 1997 to 11 per cent,
compared with a rate of 6.5 per cent in 1996. Since the beginning of 1998, price
increases have accelerated still further to levels which threaten hyper-inflation.
Inflation for January and February 1998 was 20 per cent and estimates for annual
inflation for the coming year have ranged from 40-50 per cent up to 100 or even
200 per cent.(13) Prices have risen across most sectors, but the most severe
increases have been in critical areas such as food and other essentials. Food prices
increased by 30 per cent during January and February. During the last year, rice has
increased from 1800 rupiah per kilo to 3500 ($A0.36 to $A0.70 at April 1998
exchange rates) and cooking oil from 2000 rupiah per litre to 5500 ($A0.40 to
$A1.10). The price of protein sources such as eggs, soy beans and chicken are rising
beyond the reach of many low-income consumers.