Thursday, June 19, 2008

Inflation Rate Highest in 22 month

Its official, Malaysian Inflation rate at the highest rate in almost 2 years. This report in The Guardian UK and also in Malaysiakini.
This means that the policy of price control on essential items is not working.

For years it has always been the official policy in Malaysia to control price of essential items, rice, flour, sugar, cooking oil etc. Enforcement officers making rounds to markets to check on prices of fish, vegetables and meat. This has been going on for as far back as I can remember.

What is the effect does this have on producers, people whose enterprise is producing vegetables and supplying fish and meat to the nation?
Well, to start with, the profit margin is low or negligible, and sometime not profitable. So producers shift away from these agricultural enterprises. In the long run, less people producing these foods locally. So supply would be tight.
WHen that happen, prices hit the roof. This is reflected in higher inflation.

Who is to blame? Government policy, or policymakers who think they are smart.

Malaysia's May inflation at 22-mth high, to rise more
Reuters, Wednesday June 18 2008 (Adds details)
By Liau Y-Sing
PUTRAJAYA, Malaysia, June 18 (Reuters) - Malaysia's inflation rose to a 22-month high of 3.8 percent in May and is set to rise further following a rise in domestic fuel prices this month, putting pressure on the central bank to raise interest rates.
However, Domestic Trade Minister Shahrir Samad told a news conference on Wednesday that the government does not expect June inflation to spike to double digit levels.
The government raised domestic fuel prices earlier this month, joining a growing rank of Asian countries unable to maintain hefty subsidies as global oil prices soar.
The consumer price index in May rose 3.8 percent from a year earlier, above expectations in a Reuters poll for an increase of 3.2 percent and above April's 3.0 percent.
"The higher inflation print is not too surprising though it should be noted that the steep fuel hikes in June have not come into the picture yet," Joanna Tan, Singapore-based Economist at Forecast Pte Ltd, said.
"Underlying price pressures cannot be overlooked. Coupled with the June fuel price hikes, the next headline print is expected to be one of escalated inflation," she added.
The government raised petrol prices by 41 percent early this month and lifted diesel prices by 63 percent as part of a broad reform of energy policy to prevent subsidies from eating up a third of its budget.
The central bank had said energy price increases would push inflation to an average of 4.2 percent in 2008, well above its previous forecast of 2.5-3.0 percent.
However, the latest Reuters forecast showed average inflation for this year could reach 4.8 percent, which would be the highest since 1998 at the height of the Asian financial crisis.
Malaysia's inflation has crept up since last year but is still among the lowest in Southeast Asia, thanks largely to price controls on essential goods such as flour and cooking oil.
Annual inflation in Indonesia and Thailand stood at 10.38 percent and 7.6 percent, respectively, in May.
Some economists fear higher borrowing cost could undermine consumer spending. (Additional reporting by Harry Suhartono, Niluksi Koswanage and Soo Ai Peng) (Writing by Harry Suhartono, editing by Jalil Hamid and Neil Fullick)

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