IN April 2022, our national inflation rose to 2.3% which exceeded the average inflation of 1.9% in Malaysia from the period April 2011 to April 2022.
And just recently, it was reported that inflation rose to 2.8% in May against the consensus of 2.7%. A vast development indeed.
In addition, the US Federal Reserve’s (Fed) move to raise the interest rate hike by 75bps (basis points) on June 15 had alarmed all quarters the world over over what could possibly be coming next – big inflation.
However, what does all these means? Especially to the people out there?
Generally, if most people do not understand what the numbers above mean, they do know one thing – they are feeling the pinch from the price hike of basic necessities which has begun trickling the wallets of every household.
From there, they knew and sensed that the inflation period is here. Not very surprising but not pleasant either, inflation is to stay persistent this time around.
On one hand, inflation is reducing the purchasing power of consumers. On the other hand, rising interest rates means that consumers are “forced” to absorb these rising borrowing costs. These are double whammies for consumers which would lead to dwindling disposable income while wages and salaries are hardly changed.
Nevertheless, Bank Negara Malaysia’s move through its raise of Overnight Policy Rate (OPR) in May 2022 by 25bps to 2% is commendable as the central bank is being proactive to stave off rising inflation in the country.
At the same time, we believe this move will cushion some of the negative impact on the ringgit caused by the Fed’s recent aggressive interest rate hikes.
Coping with inflation
Moving forward, the research team at FSMOne foresees that the central bank will make another three more 25bps hikes to the interest rate during the remaining Monetary Policy Committee Meetings (MPCs) that are set to take place this year.
We believe the central bank does not wish to make the mistake like Fed did – by hiking rates too slowly and letting inflation to spiral out of control. Hence, BNM is staying abreast on this matter.
The current economic situation has led to Hobson’s choice move with the Government having started the removal of subsidies moderately.
As the pandemic came along with the Ukraine-Russia war recently – where supply chains were disrupted and shortages increased – the prices of many household commodities have soared.
China’s lockdown at certain provinces also affected major productions of industrial parts that they supply to Malaysia and other countries. A domino effect took place and subsequently, our local production is delayed resulted from this and affected end users as well.
With all factors combined and ramped up, these contributed to the increasing inflation in the country. The Malaysian Government is now challenged to cope with the increasing cost of many commodities.
Although the Government has recently made a U-turn by re-imposing price control on chicken rather than allow prices to float, it is foreseeable that Malaysians will nevertheless be facing greater food security issues as food items – even eating out – will be more expensive.
In addition, food supplies could be tighter than before which may lead to limited quantity to be sold to consumers.
Besides food security, majority of Malaysians are challenged with job security in terms of disposable income as basic items are getting more expensive and possibly overall wholesale, retail and trade sales would drop as an effect to this.
Malaysians may have no other choice but to start cutting off expenses and tighten their budget to match with their monthly income.
Not to mention commodities and energy prices are also soaring. RON97’s price is now lifted to RM4.84/litre from RM3.94/litre which was last recorded on May 11.
Although the price of RON95 has not changed from RM2.05/litre, it is envisaged that the price of RON95 may follow suit the RON97 movement at certain point of time – a matter of sooner or later. However, the current water and electricity tariffs will be maintained in Peninsular Malaysia.
What does this mean to all Malaysians? Are we expecting recession in the near future?
Well, we are today living in the bubble of protection from the Government. With the lifting of fuel subsidy which is akin to a balloon, it’s only a matter of time for the rubber material to give way and pops as the air pressure increases internally.
Jason Wong is the research manager of FSMOne (previously known as Fundsupermart.com Malaysia), a multi-asset investment platform under iFAST Capital Sdn Bhd.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
