RISING cost of living is a global phenomenon. It is especially so in countries on a growth path to a developed-nation status. For example, coffee in a styrofoam cup on the sidewalks of Tokyo or, for that matter, any big city in a rich country, will lighten one’s pocket by as much as RM30. For residents in such big cities, such a price would not be too troubling. This is because with development, wages have risen in parallel.
However, while we are on overdrive to achieving rich-nation status by 2020, our wage levels have shown extreme stickiness. Could it be that our productivity levels have not risen? Whatever, the problem has to be countered. Our incomes have not risen to the level where we can comfortably accommodate the increasing cost of living.
Today, our inflation rate stands at three per cent; up from two per cent in the previous year. Food items consume one-third of a Malaysian household’s expenditure. Their prices have swelled by five per cent. What accounts for such increases?
There are two sides as to why cost of living, in essence the price level, has gone up — cost-push and demand-push inflation.
Costs of production have risen. So, they contribute to increased price levels. The Goods and Services Tax (GST) has caused a one-off spike in inflation. Admittedly, the GST is a regressive tax. It hurts the poor more than the rich. On the brighter side, the various exemptions — as much as 50 per cent — of products from GST have somewhat cushioned the impact of the GST on the lower-income groups. And, over the long-term, the inflation rate will be lower than that without the GST.
Imported inflation from a depreciated ringgit has caused prices of some two-thirds of our intermediate products to rise. This has caused a corresponding increase in the cost of final manufacture. And regulations and permits have caused prices of essential items and building materials to shoot up.
If we could eliminate all these import regulations on food and building materials, we can bring down the cost of living by as much as 20 per cent. But, these regulations are there for a purpose — for safety and health, protection of domestic industry and international regulations.
To be fair, the government has thrown off many of these shackles from the statute book to ensure greater price competitiveness. Some, however, remain. And, we should defer to the larger government wisdom on their continuance.
On the demand side, population growth and lifestyle changes have escalated the cost of living. I, and most readers of my age, grew up with Fung Keong shoes. We bought those for less than RM20 from Bata stores. Today, our children, partly on account of peer pressure, insist on wearing branded shoes that cost at least 10 times more.
When I was young, I used to help my mother grind or crush spices, onions, ginger, garlic and chillies manually. We did this with an oblong-shaped stone pestle on a trapezium-shaped flat-surfaced grinding stone. We used to pulverise rice in a large wooden mortar with a long wooden pounder to make thosai, apam or stringhopper. Now, electric gadgets have substituted human effort.
My father used to pay less than RM50 in telephone bills. Today, we have a landline with broadband. Almost all members of the household own handphones. Combined, a household can easily fork out telecom charges 10 times more than what my father paid for.
Today, we live with indispensable creature comforts of air-conditioners and electronic household appliances. Accordingly, our electricity usage has increased four times since 1990. Two-thirds of our households use cooling appliances, such as air-conditioners, refrigerators and chillers. And, these consume two-thirds of our electricity usage.
Similarly, improvements in public transport have a huge cost. Naturally, we can expect higher prices. Often, these higher prices are duly compensated with better quality, speed, comfort and connectivity.
It is only reasonable for people
to want such better and more
comfortable lives. But, we must
accept that this will inevitably
result in higher prices.
The government has sought to ease the burden of increased cost of living through, among others, increases in BR1M payouts.
Cash transfers are a common practice across the world, even in neighbouring Singapore. It is better than subsidies as the rich, too, benefit from such subsidies, perhaps even more than the poorer segments of society.
Last year, the government spent RM5 billion on BR1M. This year, that bill is expected to be RM6 billion, given increases in the amounts disbursed. Next year, it will hit RM7 billion, given the latest round of increases ranging from RM50 to RM150 announced in the 2017 Budget.
Putting money in the hands of the low-income households has a double benefit. These households have a greater propensity to consume. In 2013, Bank Negara estimated that those earning less than RM1,000 spend as much as 81 per cent of their additional income compared with 25 per cent by those who earn more than RM10,000. BR1M payouts will surely help inflate the economy as more money is spent.
The only fear is that routine cash handouts might result in some 80 per cent of the people dependent on it for an alternative source of income. So, handouts should be considered temporary until income levels rise to accommodate cost of living increases. The 11th Malaysia Plan takes due cognisance of this. It states that assistance and subsidies that are not linked to “productivity” will be reduced in favour of programmes that improve wealth ownership and skill levels.
So, to ensure increased earning capacity over the longer term, the plan has allocated funds for upgrading skills, reskilling and promoting entrepreneurship.
Eventually, the hard truth be told, we have to take ownership of how we manage our household expenditures. As William Shakespeare said: “It is not in the stars to hold our destiny, but in ourselves.”
The writer is the Head of the Strategic Centre for Public Policy at the Graduate School of Business, Universiti Kebangsaan Malaysia