The rate of inflation in Malaysia

762 words (3 pages) Essay in Economics

5/12/16 Economics Reference this

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Based on the economics view inflation refers to the increasing of the general level of prices of the goods and services in countries over a period of time. Each of the countries has their own level of inflation problem and they are tried to reduce their country inflation rate to the satisfaction level of it. The increasing of the general level of prices of the daily goods and services in the country will cause the same amount of currency only can buys fewer goods and services.

Higher inflation will result in lower purchasing power of the citizen, higher cost of living, lower quality of life and also the overall country economic activities as well. The citizen will feel dissatisfaction to the high inflation and the worst is maybe will cause negative impact to the current government of that country. Inflation also will cause a loss of the currency real value in the internal medium of exchange market and unit of account of the country economy which means that the purchasing power and the value of the currency is depreciated due to the increasing of the general level of prices of the daily goods and services. The inflation rate is the main measure of the price inflation of the country. The inflation rate is the annualized percentage change in the general price index which we always hear about that Consumer Price Index (CPI) over time.

As we know that the Consumer Price Index (CPI) is measure about the consumer price of goods and services while the GDP deflator is measure about the inflation in the whole of the domestic economy. Consumer Price Index (CPI) measures change through time in the price level of consumer goods and services purchased by households. The Consumer Price Index (CPI) is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. The annual percentage change in the Consumer Price Index (CPI) is used as a measure of inflation.

Most economists believe and agree that high inflation rate or hyperinflation is due to the excessive growth of the money supply of the country. The long sustained period of inflation is because of the money supply is growing faster than the economic growth of the country. One of the examples of hyperinflation is the Africa country, Zimbabwe. The hyperinflation in Zimbabwe began in the early 2000 after the Zimbabwe’s confiscation of white-owned farmland and the government of Zimbabwe repudiates the debt to the International Monetary Fund (IMF).

In November 2008, Zimbabwe’s inflation rate is 89.7 sextillion percent and it increase to 6.5 quindecillion novemdecillion percent (6.5 %) on December 2008. The citizen of Zimbabwe need to pay at a very high value of money to buy daily goods and services for example a bread in Zimbabwe during hyperinflation is cost Z$ 500 000. The government of Zimbabwe tries to increase the supply of the money to overcome the problems but it makes the situation worst at all. The Reserve Bank of Zimbabwe issued Zimbabwe dollar 10 trillion, 20 trillion and 50 trillion (25 US Dollar) in January 2009 but it is nothing helps to the inflation problems. Finally in April 2009, government of Zimbabwe decided that Zimbabwe dollar was suspended and all trade is made in foreign currency such as US Dollar or South Africa Rand.

Malaysia Current Inflation Rate

According to the Malaysia Economic Report 2010/2011, Malaysia’s inflation is believed to remain beneficial at between 2% and 2.5% on this year and unlikely to alarm centre bank policy makers. Based on the current annual change in the Consumer Price Index (CPI) grew by 1.5% in the first eight months of the year as the strengthening economy of our country push up the food and non-alcoholic beverages, housing, utilities, gas and fuels, transport, tourism, medical and agriculture.

The main sector that account in the Malaysia inflation index is food price which is about 31% has increased 2.2% compare with last year. Besides that, Malaysia government decided to subsidy rationalization to reduce the fiscal deficit and financial burden this included daily necessary goods such as bread, sugar, diesel, petrol and liquefied petroleum gas and all of this push up the Consumer Price Index (CPI) as well.

The Malaysia’s inflation fell to a three-month low in September 2010, it reduce the pressure on policy makers to raise the interest rate on their next meeting. The Centre Bank Governor Tan Sri Zeti said that the current inflation is not a risk and they will provide policy makers with “flexibility” before decided on further interest-rate moves.

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