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Runaway inflation in
Malaysia
By Anil Netto
If the Malaysian economy is doing so well,
why are there rumblings of dissatisfaction among
sections of the population? Of late, people have
been grumbling about rising prices - of fish,
transport, petrol, vegetables and postal rates
among others - as inflation reached the highest
level in six years.
So persistent
is the chatter that the government had to take
out a full-page explanation by the Minister in
the Prime Minister's Department, Mustapa Mohamad, in the
pro-establishment Star newspaper on why he thought the
economy was sound and the fundamentals good. At
the same time, he assured the public that the
economic statistics were reliable and accurate. He
also acknowledged the disconnect between what
people felt and what they were told about the
state of the economy. "Questions I often hear are:
'Is our economy really well?' 'If indeed our
economy is growing, where is the growth?' 'How
come you say we [are achieving] 5-6% growth but I
don't feel any impact?'"
Indeed, official
figures revealed a first quarter economic growth
of 5.7%, surpassing economists' expectations of
5.1%. It was largely attributed to the solid
performance of the agriculture and commodities
sector, helped by higher palm oil and rubber
prices and increased production of natural gas, as
well as the services sector, due to improved
tourism results, telecommunications and transport
activities. But construction, a key sector, fell
2.4%, prompting the government to bring forward 29
projects worth RM2.4 billion (US$0.6 billion).
Mustapa also acknowledged complaints from
unemployed graduates and stock investors (after
allegations of stock market manipulation).
Although he described inflation, which
reached 3.1% in May, as "moderate", the rate is
expected to accelerate following the hike in
retail petrol and diesel prices by 7% and 23%
respectively in May - the third time fuel prices
have been raised since October 2004. Over the last
two months, public bus and taxi fares have risen
by almost a third. What's more, passenger fares
for Penang ferries have doubled, highway tolls
rose earlier this year, and postal rates have
jumped, while airlines have imposed fuel
surcharges.
These and the rising prices of
food items have led to murmurs among Malaysians
who are already feeling the pinch. "I used to pay
60 sen for one loaf of benggali roti (a
type of white bread); it's now 70 sen," complained
one shopper in Penang. "And you know, steamed
kaya (a sweet spread made of coconut milk
and eggs) has gone up from RM2 a cup to RM2.80."
A Penang-based housewife, Choo, said, "The
school bus for my kids used to cost RM40 a couple
of years ago, then it went up to RM50 last year.
Now it's RM60." One vegetable seller said the
price of local chili pepper had risen from RM0.70
to RM1.30 per 100 grams since the oil price hike,
while the prices of spring onions and Chinese
celery have soared by more than 10% in the same
period. In May alone, prices of basic food items
such as cabbages rose 11.8%, eggs 8% and wet
noodles 4.8% compared to the previous month,
according to the Statistics Department's figures.
But it is the petrol and diesel price
hikes that are proving to be the most inflationary
- and they have also thrown the spotlight on the
national oil corporation, Petronas. It is
difficult to gauge if the removal of fuel
subsidies is warranted in the face of Petronas'
glowing results. For the financial year ended
March 31, 2004, Petronas posted a profit before
tax of $9.9 billion on the back of revenue
amounting to $25.7 billion - a margin of 39.3%.
"It was an exceptionally successful year as the
group delivered its best financial performance
ever," said Petronas.
The oil corporation
is involved in a number of huge projects, not
least of which is financing the construction of
Putrajaya, the lavish new administrative capital
near Kuala Lumpur, and occasionally bailing out
politically well-connected firms. Petronas has a
64.4% stake in Putrajaya Holdings Sdn Bhd, the
concession holder, landowner and master developer
of Putrajaya. The lack of transparency over
Petronas' financial affairs rankles some analysts.
"It's a huge hole in the economy," says one
political commentator in Kuala Lumpur. "No one
[among the public] knows how much is going where."
Despite all the tariff and price
increases, Malaysia's Consumer Price Index (CPI)
indicated that prices rose by a mere 3.1%
year-on-year in May and by 2.6% for the five
months to May 2005. Still, this was the highest
rise since February 1999. In contrast, the CPI
rose just 1.4% last year and 1.2% in 2003. The
Malaysian Statistics Department said the higher
CPI in May was largely due to transport and
communication (up 3% from the previous month),
food (0.4%), alcohol and tobacco (0.3%).
So why the grumbling when inflation
appears to be at a low to moderate level? Part of
the problem can be explained by the income
inequalities in Malaysia - according to the Eighth
Malaysia Plan, about 25% of households earn a
monthly income of less than RM1,000 (US$265) per
month - the threshold most analysts believe would
allow a family to just about make ends meet. Many
blue-collar workers take home less than RM600 per
month. So any price increase of essentials will
hit them the hardest, no matter what the CPI says.
Based on the Laspeyres formula, the
Malaysian CPI measures the average rate of change
in prices of a fixed basket of goods and services
with 2000 as the base year. It is a composite
index, weighted by region, based on extensive
price and expenditure surveys. It includes some
430 items, of which around 20 essential items are
subject to official price controls.
Some
quarters allege that these price-controlled items
have a misleadingly high weighting in the
composite index. "By concentrating its attention
on these items, the government has managed the
index and given the impression of controlling
inflation," noted the Economist Intelligence Unit
in a country report for Malaysia, adding that both
this policy and the CPI conceal, rather than
combat, underlying inflationary pressures.
As a composite based on average nationwide
household expenditure patterns, the CPI may not
reflect the actual expenditure on goods and
services in many households. In the base year 2000
weighting, food is given a total weight of 33.8%
and transport 18.8%, but medical care receives
only 1.8%. And yet, many households are struggling
to cope with rising healthcare and pharmaceutical
bills. Education is lumped into "Recreation,
education, entertainment and cultural services"
and receives only a 5.9% weighting, even though it
is a major component of expenditure in many
households.
The disconnect between what is
felt on the ground and the official figures
prompted Mustapa to stress the accuracy of the
government's figures, "We don't create data and
statistics out of thin air. Our government would
certainly not want to jeopardize its credibility
or run the risk of investors losing confidence in
the country because we publish wrong or 'doctored'
figures. We do not insult the intelligence of
others. It is not our business, nor is it in our
interest to lie with figures. These figures - be
they trade, reserves or inflation - are real and
accurate."
Whatever the case, the
inflation rate could rise even higher in the next
few months before easing off later in the year,
said Bank Negara governor Zeti Akhtar Aziz on June
21. Coming to terms with this, the government has
introduced a cost of living allowance (COLA) for
civil servants. Analysts, meanwhile, say they do
not expect an immediate interest rate hike as the
rising prices are largely cost-driven, and not
demand-driven. The government has forecast that
economic growth will slow down to 5-6% this year,
down from 7.1% last year.
Anil Netto
is a freelance journalist based in Malaysia,
covering political and social issues. A former
accountant, he is currently joint coordinator of
Charter 2000-Aliran, a network promoting press
freedom in Malaysia.
(Copyright 2005
Asia Times Online Ltd. All rights reserved. Please
contact us for information on sales, syndication and republishing.) |
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