Inflation is a Tax on the Poor!

Malaysia can experience a stronger inflation rate in the August-September period, 5% before any drop later in the year. The country’s headline inflation rose to 4.4% year-on-year (yoy) in July 2022 (June 2022: 3.4%) – the highest since April 2009 – largely due to higher food prices and low base effect.

Price increases involving Gardenia products which rose by 7%-20% effective Sept 1 may be deemed small in impact, considering bread & bakery products account for only 1.2% of the consumer price index (CPI) basket.

Apart from food inflation, Department of Statistics Malaysia (DOSM) said the increase in Malaysia's inflation was also due to the lower base effect last year, when an electricity bill discount of 5% to 40% was given to domestic consumers according to their total usage under the National People's Well-being and Economic Recovery Package (Pemulih) from July to September 2021.

For July 2022, apart from the food and non-alcoholic beverage group, all other groups within the CPI also continued to record y-o-y increases, except the communication segment, which remained unchanged, said DOSM

For 2022F CPI projection is at 3.1% (2023F: 3.2%). Globally, food inflation will average at 4.5% for 2022, compared to 1.5% in 2021. 

Malaysia’ net imports of food is over RM60 billion annually. Exchange rate depreciation only accentuates this cost.

BNM has raised OPR further by 25 bps to 2.5% on September 8 and a further 25 bps to 2.75% is expected by early November (2nd/3rd). Unfortunately, BNM is not moving aggressively to stem inflation which then impacts on exchange rate. Growth matters. But to hold back rate increases does not help either growth or inflation. First stem inflation, then focus on growth. Otherwise the poor are being taxed – because inflation impacts the poor more than the rich.

 

References:

Inflation in Malaysia poised to continue rising in 3Q 2022 before subsiding, Cheah Chor Sooi, Focus Malaysia, 30 August 2022

Malaysia’s July inflation hits 4.4% bolstering bets on another OPR hike, Justin Lim, TheEdge CEO Morning Bried, 30 August 2022