Malaysiakini News

Please learn some economics, Guan Eng

Abdul Rahman Dahlan  |  Published:  |  Modified:

MP SPEAKS | Malaysia's headline inflation rate hit 5.1 percent in March 2017 as released by the Department of Statistics Malaysia yesterday.

Indeed national inflation rate hit highest level since eight years ago.

Lim Guan Eng was quick to blame the government by saying:

1. The high inflation rate was caused by an autocratic and corrupt government lacking accountability and transparency in financial management.

2. Inflation was high during 1998 and 2008 when Malaysia faced the Asian financial crisis and global financial crisis respectively.

3. The inflation had hit the lower income groups proportionately harder than higher income groups.

First of all the high inflation rate in March 2017 was because of the low base effect as pointed out by the Department of Statistics Malaysia.

Transport inflation rate in March 2016 was -8.2 percent when RON95 price dropped to as low as RM1.60 per litre.

In March 2017 transport inflation increased by 23 percent as RON95 price was increased to RM2.29.

This was why headline inflation rate hit eight-year high of 5.1 percent last month.

Inflation was high in 1998 because of sharp depreciation of ringgit which pushed cost of imported food higher.

The government at that time increased the ceiling prices of cooking oil, chicken, flour, sugar and milk by 5 percent to 20 percent to mitigate the rising cost of imported food and essential items.

In 2008, Malaysia didn't face a recession. The economy was still growing by 4.8 percent in 2008.

Inflation rate was high in 2008 because of the sharp rise in crude oil price to US$140 per barrel in 2008 which resulted in the increase in petrol and diesel price.

High inflation rate didn't exclusively happen when a country faces a financial or economic crisis.

Malaysia has recorded high inflation rates in 1980, 1981, 1982 and 1992 when the economy grew by 6.7 percent, 9.7 percent, 5.8 percent and 4.7 percent respectively.

Inflation rate also usually declined during a financial and economic crisis.

In 1985 and 1986 when Malaysia had negative economic growth, inflation rates were registered at 0.3 percent and 0.7 percent respectively.

In 2009 when Malaysia's economy contracted by 1.5 percent, inflation rate was at 0.6 percent.

This is because during an economic crisis, consumers will spend less and private consumption will slow down.

During a rapid economic growth, private consumption will rise, domestic demand will increase and as a result inflation rate will grow faster.

For your information, inflation rate for those earning below RM3,000 was at 4.7 percent in March 2017 compared to national inflation rate of 5.1 percent.

This is because those in low income group spent more on basic necessities which prices of some are controlled by the government. They also received BR1M that could offset the difference/rising prices of goods.

Headline inflation rate is affected by the volatility of prices of energy and food.

Policymakers such as Bank Negara monitor the core inflation rate which has been stable at 2.5 percent.

Core inflation is calculated from a price index minus the volatile energy and food components.

Core inflation also excludes administered goods (prices controlled by the government) as prices of administered goods don't respond to demand or supply changes.

Lim Guan Eng and other opposition leaders should learn some basic macroeconomics before making silly accusations about Malaysia's economy on the basis of high headline inflation rate.

Malaysia received RM59 billion worth of foreign investment in 2016 an increase of RM23 billion from RM36 billion recorded in 2015.

This shows that there's no economic crisis of confidence as alleged by Lim Guan Eng.

The opposition must stop trying to undermine Malaysia's economy by spreading fake news and making baseless allegations against the government and the nation's economy itself.

If foreign investors and industry players believe the opposition, it will be a self-fulfilling prophecy.

ABDUL RAHMAN DAHLAN is a Minister in the Prime Minister's Department in charge of the Economic Planning Unit.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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