UNIVERSITI TEKNOLOGI MARA, CAWANGAN PAHANG (KAMPUS RAUB)

FACULTY OF ADMINITRATIVE SCIENCE AND POLICY STUDIES

DIPLOMA IN PUBLIC ADMINISTRATION (AM110)

CODE COURSES:
PRINCIPLES OF ECONOMICS (ECO120)

TITLE OF ASSIGNMENT:
INFLATION IN MALAYSIA
PREPARED BY
NAME STUDENT ID
MUHAMAD FIRDAUZ BIN MOHD 2021104587
AZMI
MUHAMMAD AIMAN SYAHMI BIN 2021104723
JANON
NUR AFIQAH SAFFIYAH BINTI 2021107405
GHAZALI
NURFARHANA ZULAIKHA BINTI 2021117137
ROZALI

GROUP:
AM1103A

PREPARED FOR:
NOR AZIAH BINTI ABD KADIR

DATE OF SUBMISSION:
10th JULY 2022
TABLES OF CONTENT
NO. CONTENT PAGE
1.0 INTRODUCTION OF INFLATION 1
2.0 THE PROBLEMS 2-3
2.1 ECONOMY’S TOTAL DEMAND
2.2 INFLATIONARY PRICE PRESSURE

3.0 THE FACTORS CAUSES TO THE PROBLEMS 4-5

3.1 DEMAND-PULL INFLATION
3.2 CONSUMER EXPECTATION
3.3 INPORT INFLATION

4.0 THE WAY GOVERNMENT SOLVE THE PROBLEMS 5-7

4.1 CONTROL EXPORTS AND IMPORT
4.2 PRICE CONTROL
4.3 FREEZE ON ALL WAGE

5.0 RECOMMENDATION 8-9

5.1 REDUCE TAXES
5.2 RELY ON RAW MATERIAL
5.3 CONTINUE THE SUBSIDIE AND SET CEILING PRICES

6.0 CONCLUSION 9
7.0 REFERENCES 10
1.0 INTRODUCTION OF INFLATION

In general, inflation was a severe issue that frequently occurred in numerous nations.
Some countries have seen inflation rates so high that their economy has lost all value. Imagine
having several boxes of cash and being unable to purchase anything at the store because the
cost has increased so much! When inflation rates are this high, the economy frequently falls.
The level of pricing for the products and services that consumers purchase increases under the
term "inflation." The rate of change of those prices is how it is calculated. Price increases are
the usual throughout time, although deflation is a possibility as well. Economics has long been
divided over the issue of inflation. Even the term "inflation" has several meanings depending
on the situation. Assuming that higher levels of spending are essential for economic growth,
many economists, businesspeople, individuals, and politicians argue that increasing inflation
levels are required to reach very high.

However, the two concepts of inflation and cost of living are different. Cost of living
refers to the absolute costs of the products and services that are used daily, while inflation
considers the rate of change in overall price levels. Even when the cost of products and services
is high, we still can have low inflation rates. The two main types of inflation are cost push
inflation and demand-pull inflation. Inflation known as "demand pull" occurs when the demand
side is the main factor. Increases in the money supply, government spending, exports, and other
variables are to blame for the ongoing rise in demand. When demand rises and cannot be
satisfied by a marked increase in supply, the overall price level will rise, leading to inflation.

Since Malaysia has been raising its economic level, it has become a successful
developing nation in Asia. Based on statistics from the World Bank, the researcher claimed
that Malaysia's manufacturing sector had expanded quickly in previous years, leading to a 25%
increase in the country's gross domestic product (GDP). According to data from Bank Negara
Malaysia (2013), the average annual GDP growth rate is 5.8 percent. Since the growth is
consistently increasing each year, it demonstrates a favourable economic situation.
Additionally, given that the GDP growth rate is increasing steadily, it is possible to conclude
that Malaysia's economy is doing well. Malaysia can thereby manage its economic issues,
including inflation and deflation.

Peninsular Malaysia and Malaysian Borneo are the two geographical divisions of
Malaysia, a nation in Southeast Asia, that are separated by the South China Sea. There are 13
states in all, with Kuala Lumpur serving as the nation's capital. As of 2019, Malaysia has a total

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population of over 32 million people and a GDP of about 314.5 billion USD. The economy of
Malaysia is called the Malaysian Ringgit and is issued by Bank Negara Malaysia, sometimes
referred to as the Central Bank of Malaysia. Inflation, which is related to money, is one of the
main economic problems in the nation.

2.0 THE PROBLEMS

Inflation may be classified into two types: demand attract inflation and price pressure inflation.
Both types of inflation raise the total price level in the economy.

2.1 ECONOMY’S TOTAL DEMAND

Demand attracted inflation. It happens when an economy's total demand for goods and
services rises significantly and quicker than the economy's ability to create products and
services. It generally occurs when an economy is quickly increasing (increased income, higher
expenditure) or when the central bank increases the money supply dramatically. Increased
economic usage of money (buying) raises demand for products and services. In the near term,
providers are unable to accommodate the production of products and services, resulting in
supply being constant. The economy's equilibrium will shift, leading goods prices to rise and,
as a result, inflation.

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2.2 INFLATIONARY PRICE PRESSURE

It occurs when the cost of a product's or service's manufacturing process rises. Among the
elements that contribute to this are salary increases for employees. It will drastically boost
production costs. Second, import prices have risen. When import prices exceed export prices,
negative trade occurs, causing manufacturing costs to rise. Third, the raw material cost.
Increases in raw material prices, particularly in oil prices, raise manufacturing costs, raising
the possibility of inflation. Fourth, the desire to earn. Inflation is readily caused when producers
raise the price of things. Fifth, productivity deterioration. When output falls, manufacturing
expenses rise. Six, taxation rises. It, like GST, raises the cost of commodities, creating
fluctuations in the CPI. However, this tax rise might result in a one-time price hike (unless
GST is always going up). Although the differences in inflation listed above appear brief, the
reasons of price level changes in the actual economy are quite complicated and difficult to
discern.

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3.0 THE FACTORS CAUSES TO THE PROBLEM

Our country’s peaceful and harmonious Malaysia is not immune to economic

fluctuations. This includes the increase in inflation after the covid-19 pandemic and even all
other countries were affected by inflation. Moreover, the ongoing conflict between Russia and
Ukraine has a negative impact, it also affects inflation. Therefore, to know more deeply about
the factors that cause this problem, we need to understand the true meaning of inflation and
know more clearly the factors that occur. certain. We can see 2022 shows an increase in prices
of vegetables, meat, eggs, and oil that has been lingering over the past few years. It affects
people in buying essential goods and lack of supply due to rising prices. In line with Bank
Negara Malaysia's (BNM) projection to be made this year is 2.8 percent from 2.3 percent
previously. BNM, too, predicts that core inflation is expected to be higher on average between
two to three percent this year. ( Alias, 2022) Therefore, we will look for the root causes of the
problem and understand the explanation more clearly.

3.1 DEMAND-PULL INFLATION

The first factor is demand-pull inflation which means an imbalance between demand
and supply of goods and services in a country. Among the clearer picture is the demand is
higher than the supply that occurs in the country. Among other things, the increase in aggregate
demand exceeds the aggregate supply. More clearly, unbalanced demand and supply are one
of the causes of goods going up. "Vegetable production is not yet at its original capacity, some
workers have not returned, foreign workers have not entered, and so on while demand has
started to soar back to the original level. So, there is an imbalance (supply and demand).''
(Musa, 2022). This indicates that high demand causes rising prices and causes inflation.

3.2 CONSUMER EXPECTATIONS

The next factor is consumer expectations, this shows that consumers make expectations
that prices will rise in the future, they will spend now, and this will increase the amount of
demand in an economy. This gives the effect that producers will take the opportunity to raise
prices. As such, they will spend and will increase demand in the economy, and in turn traders
will take the opportunity to raise prices. this allows producers to increase their profit margins.

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3.3 IMPORT INFLATION

Lastly, the factor is import inflation, the definition of import is the purchase of goods
or services from another country. An import is goods or services brought into a country from
another country certified by law. Thus, an increase in the price of imports, if the price of imports
exceeds the price of exports, causes the cost of production to increase. Among the reasons for
the higher increase in import prices is that imported shipments make production costs higher.
In addition, the depreciation of the currency also played a role in rising import prices. Due to
that, one of the reasons the country still needs and depends on imported goods is the lack of
producers of goods in the country. “Why eat tasteless and expensive imported salads when we
have access to so many good and flavourful local dishes, yet cheaper, more sustainable and
have many health benefits and food prices have increased as can be seen in vegetable prices
.and chickens. '' ( Omar, 2022)

Therefore, we need to be able to identify to ensure that the country's inflation can be
controlled again, the people can live in peace and the country's economy is getting better. The
government's efforts to ensure that the country's economy can be restored after the covid-19
epidemic, the conflict between two major countries, namely Russia and Ukraine, affected the
global economy. From here we can see some of the factors of the inflation problem in the
country and the short and long-term effects are also not eradicated by the responsible parties.

4.0 THE WAYS FOR GOVERNMENT TO SOLVE THAT PROBLEM

We are aware that the increase in inflation from January 2015 to December 2021 has
recorded national inflation of 3.2 percent (Chart 1.0) and the contributor in this component is
transportation which has recorded 9.5 percent. Next, the food and non-alcoholic beverage
component have stated 3.2 percent. This increase in the price of goods due to lack of supply at
the end of the year involves weather factors. For more knowledge, the inflation rate will be
assessed based on the calculation and measurement of the consumer price index (CPI). National
inflation in March 2020 increased 2.2 percent to 125.6 as against 122.9 in the same month of
the preceding year. Nevertheless, the increase also surpassed the average inflation in Malaysia
for the period 2011 to Mach 2022 (1.9%). (MALAYSIA, 2022)

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 chart1.0: Malaysia's overall inflation data, January 2015 to December 2021

Figure 1Department of Statistics Malaysia Website

4.1 CONTROL EXPORTS AND IMPORT

To keep the country in a stable economic situation and to ensure that inflation does not
increase excessively. One of the government's efforts in reducing inflation is to control exports
and imports in the country. Make a policy assessment to reduce dependence on imported
products. (Husin & Hairom, 2020) therefore, the government needs to take action to create
products made in Malaysia, the government needs to examine the needs of the people and build
a wider range of industries to meet national needs such as vegetable, fruit, livestock, rice
production, corn, barley including the factory industry for device tools, medicines, and plant
seeds, Through these efforts, the inherent advantages of diverse industries can add to the
national economy, many employment opportunities to the people. As for the export sector, the
Government must be brave to ensure industrial development can be done and compete in the
global market, this is because we can take the example of the rubber industry given the
opportunity to export some abroad because it has high quality in product creation, therefore,
the government must be smart formulate global market affairs in raising the national economy
and ultimately be able to contribute to the country.

4.2 PRICE CONTROL

Next, price control is the process of establishing minimum and maximum prices for a
range of certain items. It is meant to make such things more approachable. They are mostly
used for necessities like rent and gas. Long-term use of this approach results in other issues
including shortages, deterioration of product quality, rationing issues, and illegal markets for
certain products. As a result of inflation, businesses will work to raise prices as much as
possible to stay profitable and offset growing expenses. Price limits are one strategy to combat

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this "profit-push" inflation. Here is where the government places restrictions on price growth.
Another direct control strategy to stop inflation is price control and rationing. By setting a
maximum price for necessary consumer products and services in the market, the government
attempts to control pricing. They must put this technique into practice for certain items like
sugar, oil, rice, and so on to fix the market price at a specific rate and stop anyone from
changing the market price.

Price controls are imposed on items by the government as price limits or caps. Price
controls can be used in conjunction with pay controls to reduce wage push inflation. The pricing
of some items will be directly regulated by the government. Price pegging is used to ensure
that the standard price tagging for all goods and services, either by setting a floor price or
ceiling price. To avoid overcharging, all pricing must be clearly marked. In certain nations,
rationing is the last measure used if the following steps failed to control the price of some
important items. To regulate the price of rare items and give them access to minimize hoarding,
rationing is used for key consumer goods including wheat, rice, sugar, kerosene oil, and others.
Rationing creates lines, false shortages, corruption, and illegal markets, all of which are
exceedingly uncomfortable for customers.

4.3 FREEZE ON ALL WAGE

Besides, wage rises cause businesses to boost output prices to meet increasing labour
expenses, which results in cost-push inflation. A larger demand for even higher pay will result
from rising production prices. The wage-price spiral is the name of this process. The existence
of a powerful trade union may have resulted in salary rises above the wage level to stop workers
from leaving for other businesses, which may be the cause of the increase in pay. The costs of
manufacturing will rise if salaries grow faster than productivity, which will lower the overall
supply and drive-up prices. If rising wages result of strong unions negotiating for greater wage
rates inflation. Then, restricting wage growth may aid in reducing inflation. Reduced wage
growth will lower business expenses and result in less economic overproduction.

The government should put a freeze on all wages, earnings, profits, dividends, bonuses,
etc. to manage this. However, such a harsh action can only be used for a brief time because it
is likely to anger both industrialists and workers. Therefore, it is preferable to relate
compensation increases to productivity gains. This will have two results. It will limit salaries
while also boosting productivity, which will improve the economy's output of products. Every
Malaysian citizen has a duty to contribute to the government's efforts to quickly resolve the

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issue of lowering the country's inflation rate. They must aim for an inflation rate of 2% if we
are to compete economically with developing nations and realize our 2020 vision.

5.0 RECOMMANDATION

The inflation in Malaysia has a lot of effects to the society especially for the families that is
categorised as B40 group. There are few recommendations to overcome inflation in Malaysia.

5.1 REDUCE TAXES

First and foremost, the government needs to reduce taxes for manufacturing company,
especially big companies in the country. By reducing taxes, it will also reduce producer cost
for making the products. As an outcome, the price of the product will also reduce which allows
consumer to buy the product as it becomes affordable for them.

5.2 RELY ON RAW MATERIAL

Second, consumers should not rely on raw material that being affected by the inflation.
Although raw meat is considered as a major source of protein foods. Rather, the consumers
need to change their source of protein by changing it to plant based protein foods such as Tofu,
Lentils, Chickpeas, Peanuts, Almonds, and more. By this, consumer not only can save their
money, but also keep their body healthy as plant-based protein has fibre that good for digestive
and lower the cholesterol.

5.3 CONTINUE THE SUBSIDIES AND SET CEILING PRICES

Next, the government needs to continue the subsidies and set ceiling prices for goods
that are constantly affected by inflation. Recent issues in the country, for example raw material
such as chicken. The prices of chicken and eggs are rising quite high, which affects consumers
especially those on low income (Noor Atiqah, 2022) s. Although some consumers can change
their protein source, by consuming plant -based protein, but most Malaysians eat chicken as
their main source of protein. By continuing the subsidies, it can reduce the burden of consumers
to buy their protein -sourced foods.

5.4 ENFORCE THE PRICES

Lastly, the government need to enforce the prices of essential goods that being affected
by inflation (BERNAMA, 2022). this is because there are some daily necessities especially

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necessities that should not be affected by inflation but still increase in price because there are
some irresponsible parties exploiting the prices of such goods for their own benefit. By this,
the government also need to set up a special commission to eradicate such parties so that
Malaysians can buy daily necessities at the actual price set by the government without any
exploitation.

6.0 CONCLUSION.

In conclusion, the government needs to address this problem of inflation by taking

various method to overcome it by reviving the country’s economy from various sectors. if the
government fails to address this problem, our beloved country Malaysia will go bankrupt and
destroyed like the country of Sri Lanka. (Iqbal Athas, 2022)

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7.0 REFERENCES

References
Ain Shams Engineering Journal. (2021, June). Investigating the impact of inflation on labour wages in
Construction Industry of Malaysia. Retrieved from
https://www.sciencedirect.com/science/article/pii/S2090447921000174

Alias, A. (2022, JUN 16). Inflasi di Malaysia mungkin berpanjangan. Retrieved from Berita Harian:
https://www.bharian.com.my/bisnes/lain-lain/2022/06/966509/inflasi-di-malaysia-
mungkin-berpanjangan

BERNAMA. (2022, JUN 26). PM buat tinjauan mengejut harga barang. Retrieved from Free Malaysia
Today (FMT):
https://www.freemalaysiatoday.com/category/bahasa/tempatan/2022/06/26/pm-buat-
tinjauan-mengejut-harga-barang/

HASNIZA HUSSAIN, H. H. (2020, JULY 18). Kurangkan bergantung produk import, fokus produk sendiri.
Retrieved from Sinar Harian:
https://www.sinarharian.com.my/article/92717/BERITA/Nasional/Kurangkan-bergantung-
produk-import-fokus-produk-sendiri

Iqbal Athas, C. L.-R. (2022, JULY 6). Sri Lanka is 'bankrupt,' Prime Minister says. Retrieved from CNN
WORLD: https://edition.cnn.com/2022/07/05/asia/sri-lanka-bankrupt-fuel-crisis-intl-
hnk/index.html

Musa, A. (2022, Julai 1). Penawaran, permintaan tidak seimbang antara faktor naik harga barang.
Retrieved from myMetro: https://www.hmetro.com.my/mutakhir/2022/07/857524/penawaran-
permintaan-tidak-seimbang-antara-faktor-naik-harga-barang

MALAYSIA, D. O. (2022, APRIL 22). CONSUMER PRICE INDEX MALAYSIA MARCH 2022. Retrieved from
DEPARTMENT OD STATISTICS MALAYSIA OFFICIAL PORTAL:
https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=106&bul_id=Rk5sL2
9vdnBqU3V6djAvSlRiU2oyQT09&menu_id=bThzTHQxN1ZqMVF6a2I4RkZoNDFkQT09

Najihah Yusof, H. K. (2021, September). Factors that Influence the Inflation Rate in Malaysia. Retrieved
fromhttps://www.researchgate.net/publication/355149422_Factors_that_Influence_the_Inflation_
Rate_in_Malaysia

Noor Atiqah, S. (2022, Jun 29). Harga siling baharu ayam RM9.40 sekilo mulai Jumaat ini. Retrieved
from Berita Harian: https://www.bharian.com.my/berita/nasional/2022/06/971222/harga-
siling-baharu-ayam-rm940-sekilo-mulai-jumaat-ini

Omar, S. C. (2022, June 13). "Mengapa makan salad import, jika kita ada ulam tempatan yang murah"
- Penyelidik. Retrieved from myMetro:
https://www.hmetro.com.my/amp/bisnes/2022/06/851374/mengapa-makan-salad-import-jika-kita-
ada-ulam-tempatan-yang-murah-penyelidik

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