Rising Costs of Living Impacts Households!

The impact of rising costs of living on households in Malaysia is incredibly diverse.  Complaints about the rapid rise in cost of living is a common grievance in Malaysia, a major topic in any public discourse or engagement.  However, the rise in inflation reflected through consumer price index (CPI) has been low.  The average prices of goods and services have only risen an average of 2.7% annually over the last three years.  Households expenditure as a percentage of household income has also decreased from 68% in 1993 to 58% in 2016.  These numbers somehow do not reflect the sentiments on the ground.  Are these numbers inaccurate or fabricated?

While national analyses yield a positive outlook for households in Malaysia, they hide the different realities lived by lower income households compared to higher income households.  Households earning below RM2,000 in 2016 were spending around 95% of their income, increasing from 92% in 2014.  This means that the savings left for these households have gone down from RM124 per month in 2014 to RM76 per month in 2016.  In contrast, households earning above RM15,000 spend less than half their incomes, leaving them with higher savings.

The difference in spending patterns between households of different income levels are also apparent.  Households earning above RM5,000 have increased expenditure in both food at home and food away from home.  The quantity consumed at home has been reduced and replaced by food consumption away from home.  Noticeably, they have reduced the quantity of food from both sources.  This means that as food prices rise, households earning below RM5,000 are forced to spend more money on food, and reduce amount that they eat to meet ends meet.

For higher income households, the rise in expenditure is mostly attributed to increasing or maintaining their state of living, as indicated by their expenditure patterns.  For example, the quantity of recreation and cultural services of households above RM8,000 have increased between 2014 to 2016.  With residual income to spare, these households are sheltered from shocks and uncertainties that lower income households experience.

The stark difference in household expenditure across income groups provide some of the real grievances and struggles that lower income households have in making ends meet.  Understanding these changes is critical for targeting policies to address the high costs of living.

Reference: “Beyond Inflation: How Rising Costs of Living Affects Different Malaysian Households”, Allen Ng, Tan Zhai Gen, and Alia Muhammad Radzi, November 1, 2018, Khazanah Research Institute.