Be smart, savvy consumers to beat inflation


KUCHING, Nov 10: Does it feel like the money in your pocket does not stretch as far as it used to? This is the inevitable reality of inflation cycles which refers to the general increase in prices of goods and services in the economy over a given period of time.

For example, a piece of roti canai kosong cost on average RM0.50 during your childhood. But today, the average price for the food that connects people of diverse races and cultures in Malaysia has risen to between RM1.20 and RM1.80. This means with RM10 a few decades ago, it would buy you 13 more pieces of roti canai kosong than it would have today.

Inflation can be low or high, short-term or long-term, but it is not necessarily a bad thing as a moderate or appropriate amount of inflation is generally considered to be a sign of a healthy economy. But of course, too much of it can have a severe and damaging impact on economies and livelihoods, while too little could be a sign of a weak economy.

As such, consumers need to be smart as they have the power to control the rate of increase in prices of goods and services that is dependent on the interaction between demand and supply components of a market.

How does inflation work?

In economics, inflation refers to a general progressive increase in prices of goods and services in an economy which in some way could affect the purchasing power of consumers.

According to the Ministry of Domestic Trade and Consumer Affairs (KPDNHEP), the Department of Statistics Malaysia (DOSM) calculates the Consumer Price Index (CPI) monthly based on the changes in prices consumers pay for goods and services.

The CPI uses a “basket of goods and services” approach that tracks changes in the costs of 12 major categories people spend money on:

1. Food and non-alcohol beverages (which accounts 29.5 per cent of expenditure)
2. Housing, water, electricity, gas and other fuels (23.8 per cent)
3. Transportation (14.6 per cent)
4. Various goods and services (6.7 per cent)
5. Communications (4.8 per cent)
6. Recreational and cultural services (4.8 per cent)
7. Education (1.3 per cent)
8. Health (1.9 per cent)
9. Alcohol beverage and tobacco (2.4 per cent)
10. Restaurant and hotel (2.9 per cent)
11. Apparel and footwear (3.2 per cent)
12. Household decoration and maintenance (4.1 per cent)

The selection of items in the basket of goods and services is based on the consumption value obtained through the Household Expenditure Survey (HES) conducted twice in a period of five years.

The data represents a total of 168,000 prices involving 552 goods and services with 781 specifications which were collected every month nationwide at approximately 21,800 selected premises or shops.

The inflation rate measures the percentage change that occurs at that price level. The CPI used the 2010 price base with a base index of 100 for computational comparison purposes.

For example, KPDNHEP shared that the price index for fish increased by 53.4 per cent in the past 10 years  to 153.4 in June 2020 compared to 100 in June 2010. Meanwhile, the price index for fish between June 2019 and June 2020 recorded an increase of 0.7 per cent.

Each item of goods and services has its own inflation rate. The items in the basket of goods of each major group have values that vary with reference to the consumer’s preference in a particular good or service. The more a household spends on an item, the higher its weighted percentage value.

The three major groups that affect overall inflation.

Three major groups affecting overall inflation

Of the 12 main groups, three groups have the highest weighted value. The food and non-alcohol beverage group has the highest value in the CPI which accounts for 29.5 per cent of total expenditure on goods and services by household consumers.

Subdivided into three categories, data showed that consumers spent 16.9 per cent to purchase food for home; 11.5 per cent to eat outside and 1.1 percent on coffee, teas, cocoa and non-alcohol beverages.

Housing, water, electricity, gas and other fuels made the second highest value at 23.8 per cent, accounting for rental for house (18.1 per cent), utilities bill and services (4.4 per cent), and home maintenance and repair (1.3 per cent).

Transportation takes up 14.6 per cent of total consumer expenditure with 12.3 per cent allocated to maintenance of personal vehicles, 1.5 per cent to purchase cars, and 0.8 per cent for various transportation services.

Kumpulan ini dibahagikan kepada 3 pengelasan utama.
There are nine sub-groups under Food at Home.
Under Food Outside of Home, there are 19 sub-groups.

Spending patterns of an average Malaysian for RM100

With RM100, approximately 68 per cent of a household expenses will go to food and non-alcohol beverages (RM29.50), housing, water, electricity, gas and other fuels (RM16.90),  transportation (RM14.6), while the remaining will be used for other expenditure.

Since goods and services in these three groups dominate overall household spending, they are highly relevant and significant to consumers. In this case, KPDNHEP noted that any price increase in any of the goods and services under these three groups will have a significant impact on consumer household spending.

The disproportionate pain of inflation

The value of inflation is based on 781 item specifications of goods and services. As such when inflation in a particular month recorded an increase, it does not mean that all goods and services are seeing an increase in price.

For example, KPDNHEP said Malaysia’s inflation rate was at 4.7 per cent in April 2021, giving an impression that people have to fork out more money for goods and services compared to the previous year.

But in reality, consumers do not buy all the items in the groups, instead they make purchases according to their needs.

More importantly, not all items recorded price increases. For April 2021, a total of 32 items under the food and non-alcoholic beverage group saw a decrease in price compared to the previous year.

Be a smart consumer, you have the power to choose

The gradually rising prices associated with inflation can be caused by demand and supply. When demand for goods and services increases but supply remains the same, it will pull up the prices. The same can occur when supply of goods and services is limited in some way but the demand remains the same.

While inflation can cause redistribution of purchasing power, KPDNHEP however observed that it does not greatly influence consumers spending patterns especially for common or essential goods and services even if the price increases. Therefore, consumer demand still exists and price increase is likely to continue.

That being said, KPDNHEP emphasised that the inflation rate can be a reference for consumers to make price comparisons and find alternative products or switch to other brands that are priced reasonably.

While consumers’ old habit may die hard as they would prefer to choose their favourite items even though the price is high, KPDNHEP said consumers should change their purchasing behaviour.

Consumers should be aware that they have the right to choose goods and services whose prices are much lower but have the same quality as their favorite items.

For example, makcik Kiah would prefer Indian rose red shallot for cooking, but the price of the item is more expensive at that time. Makcik Kiah finally decided to buy Myanmar red shallot as the price is much cheaper.

Such change in purchasing behaviour to some extent would be able to influence the demand for a product in a market which in turn would help control prices in the market.

In addition, consumers should not be obsessed with certain brands, types of products and premises. The choice is in the hands of the consumers. Consumers are free to choose goods or services at any premises that offer them at a more affordable price.

Make use of Price Catcher app

Applications such as Price Catcher provided by KPDNHEP are very useful in helping users make comparisons of premises that offer a wide selection of items at different prices. Price Catcher indirectly provides a glance of the retail price situation in the market on a daily basis while helping consumers make wise decisions in purchasing.

With this application, users can plan their purchases wisely and cultivate this behavior among users.

Consumers have the power to influence the demand and production at the producer or supplier level which can determine changes in the price of goods and services in the market.

Therefore, if consumers can spend wisely, price changes in the market can be controlled which in turn can affect the inflation rate. — DayakDaily