Monday, June 23, 2008

Inflation Rate Not A Reflection of Reality

I have argued, and so have most of my opposition colleagues that the Government's inflation rate calculation is faulty and needs to be desperately revamped as it has failed to reflect the real world.

Throughout the campaign period, we have ridiculed the 2% inflation index as announced by the Government. Can you believe that inflation is only 2%?

Today, to a supplementary question posted by BAGAN, the Second Finance Minister, Nor Mohamed Yaacob admitted as much that the inflation index published by the Government does not reflect reality. He announced that the current make up of the inflation index is being revamped to better reflect what is on the ground.

It's a big admission, for the Government has been measuring its "excellent performance" and praised the health of the economy by quoting the "low" inflation index. Will try to extract the Hansard text tomorrow.

5 comments:

KY said...

The whole 2% thing is so ridiculous it's not even funny.

Burger daging special from my work place has just risen from RM 2.80 to RM 3.20. Not exactly 2%

Anonymous said...

Can a family man with Salary RM3,000 survive in Malaysia?

Let's do some simple calculations here.

In Malaysia, the average family income is RM3,000 /month
(where father works, mother doesn't).

I understand there are many families whose
monthly income does not reach RM3,000,
but, to make things simple,
let's take RM3,000 as the figure. Ok lah, right?

Okay, let's start rolling with a family which has
Papa, Mama, 1 daughter and 1 son. Ngam-ngam ....

Calculation starts...

Electricity and water bill: RM100
(No air-con, No home theatre, No water heater ... ok?)

Phone bill ( Telekom): RM100

Meals for a happy family: RM775
(3 meals on RM25/day, RM25 for 4 persons...?)

Papa makan / teh-tarik during working hrs: RM155
(RM5/day, RM5 ... can eat what?)

Car repayment: RM400
(A proton saga aeroback, 7 yrs repayment)

Petrol (living in city, traffic-jam): RM300
(go to work, bring son to school,
only can afford one car running)

Insurance: RM650
(kids, wife and myself)

House repayment: RM750
(low cost housing repayment for 30 yrs,
retired still have to work to pay!)

Tuition: RM80
(got that cheap meh? i don't think so)

Older children pocket money @ school: RM20
(RM1/day, eat bread?)

School fees: RM30
(enough ah?)

School books and etc: RM100
(always got extra to pay in school)

Younger children milk powder: RM50
(cannot have the DHA, BHA, PHA one, expensive)

Miscellaneous: RM100
(shampoo, rice, sauce, toilet paper)

Oh wait!!! I have to stop here, so...
No Astro,
no movie @ cinema,
no DVD,
no CD,
no online,
cannot KFC,
cannot McDonald,
cannot go Park walk during weekend (petrol expensive),
no chit chat on phone with grandparents, and etc...

Let's use a calculator to total up... WALAO EH! Shit! RM3,610 already...

EPF belum potong, income tax lagi........oledi RM3,610 ....

How to survive lah tuan-tuan dan puan-puan sekalian ???

Our Sleeping Prime Minister Pak Lah asked us to change lifestyle?

WHAT CHANGE?

Don't eat? Don't work? Don't send children to school and study?

Besides that, I believe in Malaysia 's population, there are millions of Rakyat Malaysia who doesn't earn RM3,000/month!!!

What is this? Inilah Malaysia Boleh... Sorry ... it should be Malaysians Boleh , because we're still alive and kicking!!

Our politicians must be BLOODY MAD & HELL STUPID!!!

No wonder so many Ah Loong around lah...

Jeremiah said...

Why are people here still questioning about a 2% inflation rate when that was the rate for 2007 and not the first five months of 2008 which is more like 3%-4%?

Economists all know that the national inflation rate is an average inflation rate based on the average spending pattern of an average citizen, which is a statistical entity.

To focus on the problem of the current CPI index, yang behormat Tony Phua should propose that:

1. An urban inflation rate be measured and disclosed versus a rural/small town inflation rate. We all know that a bowl of noodle costs much less in a small town like Sibu than in PJ/KL.

2. That the government updates the consumer survey on which the CPI is based and which may not longer relevant becase the last survey was done years ago.

3. That the government reveal how much of the average cost of food for the consumer is imported so that we know whether a stronger Ringgit will help to keep a cap on imported inflation.

4. That the government and Bank Negara educate the public about the linkage between cost-push inflation and demand-push inflation. BN always say the two types of inflation are different but the truth is that cost push can lead to demand pull when expectations are acnhored that food and oil prices will continue to rise.

5. That the real reason for rising inflation (not the national average CPI) is partly because there is excess money in the system created by a managed currency policy. 101 Economics tells you that too much money chasing after too few goods leads to higher prices. Hence, letting the Ringgit appreciate will curb moeny creation and dampen inflation.

As a practising economist, I assure you that these issues are not academic but supported by the practical experience of regional economies.

My general view of price controls which is the current policy instrument is that these are temporary measures will encourage people to consume more and result in shortages in the future.

Anonymous said...

If petrol price is allowed to float freely without subsidy, the inflation rate will be 2 digits by now.

Anonymous said...

Example:
In singapore i drink a cup of coffee at coffee shop, @ today's prices it will cost me 80 singapore cents.

In JB i drink a cup of coffee the coffeeshop located near jb customs , @ today's prices it cost me RM1.30

Of course if u take into consideration of exchange rate jb's coffee will be cheaper as
RM1.30=S$0.55 (exchange rate:s$1=RM2.37) which is 31.25% cheaper than singapore. (0.55/0.80)*100%=31.25%

now if exchange rate is ignored , comparing dollar to dollar , actually singapore's coffee price is much lower than jb ie: their coffee is much cheaper than us by 50 cents
(RM1.30-s$0.80)=0.50

why singapore could maintain their cost at low price is because Monetary Authority singapore (central bank) had always maintain a strong sing dollar against basket of currencies to contain inflation , to maintain prices of imorted goods as their country does not have natural resources...for past 2.5 decades singapore had been able to maintain their inflation rate in the region of 1.5%-2% , only when the recent subprime in the America & surge of oil prices kicks in s'pores inflation had suddenly climbed in the region of 6.5% as of May 2008.

so how on earth did malaysia manage to maintain inflation rate @ 2% ???????