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INFLATION is hitting everyone hard globally, and Malaysians are no exception. From businesses to households and even the government, no one can escape the squeeze from the current spike in inflation.
In recent months, people have had to cough up more than what they spent a few years ago to maintain a similar lifestyle or just to survive. This can be interpreted as a higher cost of living due to the surge in inflation.
While the terms “cost of living” and “inflation” are closely related and used interchangeably, they are different in various ways.
Cost of living, in general, reflects a household’s expenditure on goods and services that are necessary to maintain a certain standard of living. In a very broad term, cost of living means that the a household’s spending needs to be maintained at a constant standard of living.Meanwhile, the consumer price index (CPI) is not an ideal measure of changes in the cost of living. It is a measure of the price of a fixed basket of goods and services, with an unchanged composition and quality over time.,
This approach is relatively practical and gives the CPI certain properties that make it attractive as a target for monetary policy.
In the case of Malaysia, the basket constitutes subsidised items that help keep the CPI lower than many other countries.
While there is evidence that showed private consumption has picked up following the border- reopening, the impact from the rise in household spending is far less significant compared with the rise from the cost segment.This was rightly pointed out by both the minister and chairman of Bursa Malaysia Tan Sri Wahid Omar, during the discussion.
For instance, while Malaysia’s CPI in May was 2.8%, the reading was way lower compared with the United States and the United Kingdom at 8.6% and 9.1% respectively or that of the eurozone (8.1%), Thailand (7.1%), Singapore (5.6%) and Indonesia (3.6%).
In a recent discussion on global inflation and its impact on Malaysia chaired by Minister in the Prime Minister’s Department (Economy)Datuk Seri Mustapa Mohamed, the rising inflation and its impact on both businesses as well as the rakyat is a major concern for the government.