INFLATION: THE DARK REALITY OF LIFE & HOW TO LIVE WITH IT

PREPARED BY GROUP:

MOON ZAPPA ANAK JIMMY (L)

SYLVIA BANUN MAJA

NORSYAFIKA BINTI OTHMAN

INTRODUCTION

There are many time of late one hears the cries of dissatisfaction among fellow citizens on the perpetual increase of consumer goods; the price of groceries has gone up. It is too pricey to eat out. One has to cut down on repair works, cinema, further studies, social gatherings and lists go on and on. These are the implications of inflation. They are grim and disheartening. All are clueless as to how the future will look like. Some may wonder when the gloomy state of affair will end. Economists will say it is a vicious economic cycle that the global community has to endure every now and then. While all of us are praying for a better time ahead, it would be wise to keep calm to live through toughest of economic time.

WHAT IS INFLATION?

Inflation is a rise in prices, which can be translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time. The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.

While it is easy to measure the price changes of individual products over time, human needs extend beyond just one or two products. Individuals need a big and diversified set of products as well as a host of services for living a comfortable life. They include commodities like food grains, metal, fuel, utilities like electricity and transportation, and services like health care, entertainment, and labour.

Inflation aims to measure the overall impact of price changes for a diversified set of products and services. It allows for a single value representation of the increase in the price level of goods and services in an economy over a period of time.

In short, inflation is a generalized rise in prices.

THE CATALYSTS FOR INFLATION

Russian Invasion of Ukraine

On 24 February 2022 before 5:00 a.m. Kyiv time, Russia invaded Ukraine in a major escalation of the Russo-Ukrainian War, which began in 2014. President of Russia, Vladimir Putin announced a "special military operation" in eastern Ukraine and "effectively declared war on Ukraine." In his speech, Putin said he had no plans to occupy Ukrainian territory and that he supported the right of the Ukrainian people to self-determination. He said the purpose of the "operation" was to "protect the people" in the predominantly Russian-speaking region of Donbas who he falsely claimed that "for eight years now, been facing humiliation and genocide perpetrated by the Kyiv regime".

Picture 1: Smoke rises in Kharkiv

The invasion has likely resulted in tens of thousands of deaths on both sides and caused Europe's largest refugee crisis since World War II, with an estimated 8 million people being displaced within the country by late May as well as 7.7 million Ukrainians fleeing the country as of 18 October 2022. The invasion has also caused global food shortages.

One has to understand that Ukraine is a major producer of grains, wheat especially. Needless to say the moment Russian soldiers marched into Ukrainian soil, all daily activities most importantly economic activities were halted. The ceasing of wheat production drastically cut short the supply of food commodities in the market and hence pushes up the price.

Additionally, Russia being the aggressor here also has its production of oil and wheat affected. The tyrannical act of Russia has resulted in the reduction of oil production. What further compounded the matter was when the European Union and other western powers like the United States who opposed the invasion, declared an economic sanction on Russia. The sanction was meant as a political method to pressure Russia from continuing with the invasion. Economic sanction is the restriction on the movement of goods, trades, or simply put the disruption of business. Consequently Russia became a pariah state when most western businesses left the Russian market by closing their businesses operations. The impact of the sanction did not stop at Russia only. Major economic powers like the United States, United Kingdom, China, Japan, Germany and France felt the effects too.

Picture 2: 7.7 million refugees crossing into Poland

The Post COVID-19 Factor

Back in early 2020 the whole world went into complete lockdown as a way to curb the spreading of the contagious and deadly COVID-19 virus. The extreme measure turned the world into a self-isolated global community. The impact was devastating. Families were separated across the globe, businesses closed down, unemployment rate went up, hospitals were congested with COVID sufferers and mental illness was a side effect of COVID. Needless to say the world economy plummeted. It stayed that way for two years. When the authority lifted the lockdown and everything returned to normality, it took quite a while for the economy to recover. It can be said that the inflation is the lingering effect of COVID-19 pandemic.

INFLATION IN MALAYSIA

Picture 3: Domestic Trade and Consumer Affairs Minister Datuk Seri Alexander Nanta Linggi speaks to the media in Putrajaya, June 21, 2022

Domestic Trade and Consumer Affairs Minister, Datuk Seri Alexander Nanta Linggi said ceiling price control for chicken, chicken eggs and subsidies for palm cooking oil in bottles of two, three and five kilogrammes (kg) will not be continued from July 1, to the media in Putrajaya, June 21, 2022. The move was implemented to ensure that the supply of food in the market was more stable and prices were stabilised in the long run.

The government sets the maximum retail price of chicken for Peninsular Malaysia at RM8.90 per kg for standard chicken and RM9.90 per kg for super whole chicken (slaughtered and cleaned without legs, head, liver and gizzard). He informed that the subsidy for cooking oil in one kg polybag packages which is offered to consumers at RM2.50 per packet would continue.

Picture 4: New ceiling price for chickens

Picture 5: New ceiling price for eggs

He informed that the subsidy for cooking oil in one kg polybag packages which is offered to consumers at RM2.50 per packet would continue. The maximum retail price for palm cooking oil in five kg bottle packaging was at RM29.70 per bottle, 1kg bottle (RM6.70), 2kg (RM12.70) and 3kg (RM18.70). Secretary-general of the domestic trade and consumer affairs ministry (KPDNHEP), Azman Mohd Yusof, said a new subsidy rate would be given for chicken eggs at RM0.08 each for farm operators. The maximum retail price of Grade A chicken eggs has been set at RM0.45 each, Grade B (RM0.43) and Grade C (RM0.41) in the peninsula while for Langkawi, Sabah, Sarawak and Labuan, the maximum prices of chicken and eggs vary, depending on the zones and districts.

Understanding the rate of price increases over time could help with one’s personal money management. Here are a few tips on how to fight against inflation:

Find lower prices: Identify recurring charges within household every month. Streaming services, insurance premiums, internet bills, phone plans, credit card fees, gym memberships – could any of these be maintained, but at a cheaper price?
Let go of secondary vehicles: Sell off any secondary vehicle that no longer need. Contributing to the second-hand market could fetch a nice premium, especially during inflation, while saving people on unnecessary maintenance costs.
Invest in yourself: Investing in yourself will help you be prepared for an uncertain financial future. This starts with good education, and continues with skills maintenance and upskilling.

CONCLUSION

In most situations inflation has a negative effect, but in some, it can provide a benefit. Inflation does not stop and will never stop. This is a reality that every countries including Malaysia has to constantly dealing with. The best thing that we can do is to make choices on how to manage the situations and to educate the citizen to deal with the situation. As for those involve in businesses they can always choose to maximize profits by staying small, focus on investing business and grow them quickly. As a citizen, we can always choose to cut our expenses for the unnecessary and wherever possible will definitely help to slowdown the overall economic activity. Therefore, by correcting the biased perception on inflation, we will be able to reduce the inflation expectations. All information and future trends of inflation shall be delivered to the public to assure that everything will be stable for the time being. Thus, correcting the perception biases is important to anchor inflation expectations.

REFERENCES

https://www.bbc.com/news/world-europe-63478704

https://www.theguardian.com/world/2022/nov/01/vladimir-putin-keeps-open-option-of-drafting-more-russians

https://asianews.network/can-bangladesh-government-tame-raging-inflation/

https://www.business-standard.com/article/international/mideast-north-africa-economies-resilient-inflation-to-slow-growth-imf-122103100358_1.html

https://www.nst.com.my/business/2022/11/845954/consumer-spending-may-slow-down-q4

Page updated

Google Sites

Report abuse