This article first appeared in The Edge Malaysia Weekly on July 18, 2022 - July 24, 2022
The calculation depicts a family of four living in the Klang Valley. It also assumes that there will be another 25 basis point rise in OPR as well as a 5% increase in grocery expenditure and a 10% rise in dining out expenses by the end of the year.
A common grouse among consumers today is the higher prices they have to pay for goods. This consumer sentiment exists despite the heavy subsidies and price ceilings the government has put in place to control the rise in prices.
Food prices, in particular, have been going up sharply. The May Consumer Price Index (CPI) showed that food was a main cause of the uptick in inflation, with the component rising 5.2% year on year.
However, many have also said that the CPI is a poor indicator, as it often does not reflect the actual cost increases experienced by consumers.
Take, for example, the humble chicken rice, a lunch staple for many. At the start of 2022, a plate of chicken rice in the Klang Valley would have cost RM6.50 to RM7. By now, many sellers have raised prices by an average of 50 sen in order to cope with the higher raw material costs.
Coffee lovers would also have noticed that the price of their cup of joe has increased by 10% to 15%, or RM1 to RM2, recently.
The bad news is that food inflation is expected to increase further in the second half of the year, according to economists. The percentage increase, they say, would largely depend on how much subsidy rationalisation takes place.
Most certainly, food price increases affect households of different incomes differently. It largely depends on their lifestyle, consumption patterns and whether there is a willingness to downgrade to cheaper alternatives.
In a back-of-the-envelope calculation, for a family of four in the three major income categories of B40, M40 and T20, the M40 group would appear to be the worst off at the end of the day, with a significant decline in the amount of money left for savings.
The T20 group also see themselves having less to save or invest, but compared to their income, the decline in the amount is relatively insignificant.
While one may wonder why it is not the B40 households that are suffering the brunt of price increases, it must be pointed out that the calculation takes into account a family of four. In reality, however, B40 households often have more than four people.
For the monthly expenditure calculation, we look at how a 5% increase in grocery bills and a 10% increase in food away from home in the next six months would affect households. We also included an additional 25 basis point increase in the Overnight Policy Rate, as expected by economists. Besides these factors, other variables remain constant.
It is worth noting that the calculation does not take into account emergency purchases or durable goods purchases, nor does it include yearly expenditure such as school uniforms, shoes and clothes.
We also assume that the respective households are maintaining their existing lifestyles despite the increase in prices.
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