Monday, October 23, 2017

The single biggest economic challenge which Dato’ Seri Najib Razak must address in the 2018 Budget is rising inflation

We will expect Dato’ Seri Najib Razak to wax lyrical about the higher that expected economic growth as reflected in the recent GDP figures. Bank Negara Malaysia (BNM) said given the strong growth in the first half of 2017 at 5.7%, the economy is expected to expand by more than 4.8% in 2017.

The question must be asked, if Malaysia’s economy is doing so well, why is it that ordinary Malaysians on the streets are feeling so pained?

The answer is obvious.  While the BN leaders sing praises of themselves over their supposed achievements, Malaysia’s inflation rate – which reflects the cost of living in the country, has been hitting record levels unseen since the global financial subprime crisis a decade ago.

Malaysia recorded an inflation of 4.3% year-on-year in September, the highest since March, mainly due to the rise in transportation costs and prices of food and non-alcoholic beverages.

According to the latest the consumer price index (CPI) released by the Statistics Department on Friday, transportation segment increased 15.8% on costlier fuel while the food and non-alcoholic drinks group rose 4.6%.

To put the above figures in context – despite GST’s implementation in April 2015 which resulted in a spike in inflation, the CPI had only increased to 2.1%.  In 2016, the inflation rate continued remained persistent at 2.1%.

Back then, the BN Ministers argued that the rising inflation was only a temporary “one-off”, and assured that the inflation rate will decline after a year or so after the implementation of the GST.  However, the CPI not only remained stubborn, it has accelerated to 4% year to date in 2017 demonstrating how wrong the BN administration have been.

In fact, Malaysia is currently suffering from negative real interest rates.  A survey of the local banks would show that they are only paying up to interests of 3.05% for 1-month fixed deposits.  If one keeps cash in a current or savings account as most Malaysians do, the gap would be even bigger.

This means our hard-earned savings kept in the banks are worth less tomorrow than they are worth today.

Hence not only Malaysians have gotten markedly poorer globally as a result of the massive depreciation of the ringgit over the past 4 years, our wealth is shrinking even in local ringgit terms.

Hence, the single biggest economic threat which must be addressed in the 2018 Budget to be announced on Friday this week is Malaysia’s inflation rate.  If Dato’ Seri Najib Razak decides to gloss over the issue by pulling the wool over the people’s eyes in an election year, the consequences for the people will be dire as Malaysians will be faced with even higher cost of living expenses in an environment of stagnant wages and rising unemployment, especially among youths.
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