Hornbill Unleashed

April 28, 2017

10 ways to fight rising cost of living

Filed under: Politics — Hornbill Unleashed @ 8:02 AM

A more careful examination of statistics shows that rising inflation is not entirely due to higher prices of fuel as oil prices recover but also due to rises in the price of food and non-alcoholic beverages, a major concern for the man on the street.

Inflation has been climbing this year, rising to an eight-year high of 5.1 percent in March (see chart) compared to prices a year ago. The Department of Statistics (DOS) attributed this to a 23 percent increase in transport costs but these account only for 13 percent of total costs in the consumer price index or CPI which measures inflation.

But consider this from the DOS report: “The index for Food & Non-Alcoholic Beverages which accounted for 30.2 percent in the CPI weights, increased 4.1 percent in March 2017.

“The increase was fuelled by the food sub-group which comprised Oils and Fats (+38.8 percent), Fish & Seafood (+5.2 percent), Vegetables (+4.8 percent), Meat (+3.7 percent) and Fruits (+3.7 percent).

“As for the Food Away From Home index, it continued to rise in March 2017 and showed an increase of 4.4 percent.”

That’s worrisome in a period which is not particularly inflationary for the rest of the world – in fact most countries are currently experiencing lower inflation. Here’s a sample of latest announced rates: Hong Kong 0.5 percent, Singapore 0.7 percent, India 3.8 percent, China 0.9 percent, Indonesia 3.6 percent, Thailand 0.76 percent and Philippines 3.4 percent.

Apart from the increase in oil prices, the other major factor that would have accounted for price increases is the continued slide in the value of the ringgit, which would pushed prices of oil further up as well as the price for edible oils and fats. In fact, the ringgit has been one of the worst performing currencies of late which means imported goods would have risen in price significantly.

If we don’t watch it we may be on the road to becoming a high-inflation country, a position we have not been in before. But there are ways to stop the slide and this has to start with moves at the policy level to improve the overall efficiency and health of the economy and then move to actions on the ground.

Here are 10 ways to do that:

1. Go for policies which strengthen the ringgit.

In the 70s, our currency was exchangeable one-for-one with the Singapore and Brunei dollar but since the dismantling of the arrangement, the Singapore dollar is now worth over three times the ringgit. That’s because Singaporean policy moved towards a higher value-added, service-based economy whereas we went for lower value-added manufacturing and subsidising of exporters through a weak currency, directly lowering the relative income of Malaysians. We need to move away from that and consciously engage in policies that bring most value to everyone. This will automatically result in a better value for the currency.

2. Cut corruption, reduce procurement costs and cut leakage.

Corruption makes the cost of everything more expensive because of added costs in layers of procurement and contracts, greatly affecting the efficiency of economic operations. While one must welcome the Malaysian Anti-Corruption Commission’s recent increased efforts to curb corruption, the biggest corruption case not only in Malaysia but perhaps in the world – 1MDB and as high as RM40 billion allegedly pillaged or squandered – has not been investigated and the culprits continue to be free. This alleged corruption and thievery at 1MDB has resulted in a lower value of the ringgit – a clear, now permanent kleptocracy risk premium.

3. Cut import taxes and excise duties.

If cutting subsidies is a fair and economic thing to do, surely removing import taxes and excise duties is a natural corollary, especially with an across-the-board introduction of the goods and services tax or GST. But look at the high taxes on cars, motorcycles and other consumables. Why are they not being removed?

4. Enforce anti-profiteering and price control mechanisms.

We have anti-profiteering laws and price control mechanisms but as with so many others laws and rules, enforcement is sorely lacking. There is now even a formula to calculate the profit margin for a business and a limit on the margin but there is hardly any enforcement of these, making the existence of such laws a mockery of justice.

5. Encourage competition, industry and efficiency.

The surest way of combating profiteering is to encourage competition, reward those who are willing to work hard and promote efficiency. In other words, encourage enterprises by doing away with red tape, bureaucracy and corrupt officials who extract their pound of flesh before businesses can start operations and continue after they are operating. If you put obstacles in the way of business, competition will not flourish and costs will be high. If we can give all sorts of incentives and one-stop centres for foreign direct investment, why can’t we do it for local enterprises?

6. Stop cartels.

Oh yes, we do have laws against non-competitive behaviour and even a commission to investigate price-fixing and cartel-like behaviour. But surely all of you would have wondered, like me, why telecommunications providers provide uniformly high prices when prices have collapsed worldwide. Or why tobacco manufacturers seem to increase prices within days of each other. And why are there just two breweries in the country? For prices to come down, cartels have to be smashed by introducing more competition and enforcing legislation.

7. Streamline licensing requirements.

Why not make licensing basically requirements-based. If you satisfy the following requirements, authorities must – at the pain of legal penalties – give you the licence, no ifs and buts and arbitrary discretion which is an open path to corruption. That will allow enterprises to move quickly into any areas which are being under-served, with the resulting competition in providing goods and services resulting in reasonable prices.

8. Require restaurants to serve filtered water free.

This is a small but important thing. In some restaurants, including a number of fast-food outlets, tap water is not served even if you want them. That means an addition to the bill of as much as RM3 or more to your meal. If you ordered a quick meal for RM6, your cost goes up by 50 percent because water is no longer free.

Some outlets charge 50 sen for a glass of tap water – is that not profiteering because the cost of that water is a very small fraction of 1 sen, or 0.07 sen to be precise for a 350cc glass at the highest charge for water in the Federal Territory of RM2 per metre cube. That’s a profit margin of a massive 70,000 percent.

Perhaps some social media activist/entrepreneur should put up on a website a list of restaurants that do not serve tap water or charge for tap water. Then we can boycott them. Meantime, the government should legislate this – all restaurants must serve filtered tap water for free on demand.

9. Boycott restaurants that charge too much.

Yes, we can boycott restaurants that are excessive in pricing. It is a Malaysian phenomenon that when restaurants become successful they raise prices, such as many banana-leaf restaurants these days. You now pay RM9 for vegetables and rice and separately as much as RM10 for a plate of mutton for one these days. Include a drink and more than one dish, a person and a banana-leaf meal costs about RM50 for two these days!

And perhaps we should highlight restaurants where food is good and reasonably priced. Some techie surely can make money out of something like this, combining it with 8 above.

10. Require displayed prices to include GST and service charges if any.

It is standard practice in Malaysia to put prices down before GST and service charges on the menu with a small subscript that points out that prices are subject to service charge and service tax. These raise prices 16 percent. If the total price is in the menu, then the full cost of a meal becomes obvious and customers can adjust their purchase accordingly or go somewhere else.


P GUNASEGARAM says low inflation is almost always the product of a good, healthy, clean, efficient and competent economy.
Source : @ Malaysiakini


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