ECO211

MACROECONOMICS

WRITTEN REPORT GROUP PROJECT

NO. STUDENT NAME STUDENT ID

1 NUR AZMINA BINTI ALDAM 2021827758

2 JULITA AIESHAH BINTI JUNAIDI 2021883746

3 SITI RASHIDAH BINTI BAHAMAN 2021616866

4 ADAM RIDZA 2021832092

LECTURER NAME:
MADAM SUMAFFIATIEE BINTI SULONG

SUBMISSION DATE: 15 DECEMBER 2022

 1

INTRODUCTION

The most frequently used authors and terms are positioned in the center of the figures,
with the remaining words arranged around them. The papers' 7,680 authors, out of whom 110
have three or more articles, total 8. In addition, 74 articles connected to one another in 11
clusters. The site with 12 articles had the most content, the best communication, and the
strongest overall links. Out of the 5919 keywords that were found in these articles, 557 had at
least a 3-times frequency. According to the co-occurrence network of their keywords, "humans"
and "COVID-19" were the two words that appeared the most frequently in these articles.In other
terms, inflation is also described as the rate at which the purchasing power of a currency
declines and, consequently, the overall level of prices for goods and services increases. It is
sometimes used to categorize inflation into three categories: built-in inflation, demand-pull
inflation, and cost-push inflation. The two most popular inflation measures are the CPI
(Consumer Price Index) and WPI (Wholesale Price Index). Depending on one's viewpoint and
the rate of change, inflation can be perceived either favorably or negatively. Those who own
tangible assets, such stockpiled goods or real estate, may profit from inflation since it raises the
value of their possessions. A single value can be used to represent the rise in the price level of
goods and services in an economy over time. Inflation aims to measure the overall impact of
price changes across a wide range of goods and services.

Additionally, the percentage change in prices over a specific time period, typically a
month or a year, is another definition of the inflation rate. The percentage represents the rate of
price growth over time. For instance, if a gallon of gas experiences 2% yearly inflation, gas
prices will increase by 2% the next year. The misery index, a financial statistic that aids in
assessing the general public's financial well-being, includes the inflation rate as a significant
component.

A recently discovered coronavirus that produces an infectious disease is called

coronavirus disease (COVID-19). The COVID-19 was first identified as the cause of an outbreak
of respiratory illnesses in Wuhan, Hubei Province, China. After then, more and more nations
have reported incidents since December 2019. A vast group of viruses known as coronaviruses
can cause a wide range of ailments, from the common cold to more severe conditions including
Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS).

People who are older and those with underlying medical illnesses such cancer, diabetes,
chronic respiratory disease, and cardiovascular disease are more likely to experience serious
illness. It's crucial for us to follow proper respiratory hygiene because the COVID-19 virus is
primarily transmitted by saliva droplets or discharge from the nose when an infected individual
coughs or sneezes. One aspect of the Malaysian economy that the COVID-19 appeared to have
a significant impact on is inflation.
 2

ANALYSIS OF INFLATION THAT OCCURS IN MALAYSIA DUE TO COVID-19

Malaysia was affected by inflation as a result of COVID-19. Globally, the Covid-19

inflation had an influence from February 2020 to May 2020. In the meantime, after being
negative for a year, inflation became positive in February 2021 and saw a 2% growth. Our
nation has been impacted by COVID-19 in various ways, including the economy and health. The
anticipated findings of this study demonstrate that external factors have a significant influence
on Malaysian inflation in addition to local ones including private consumption, government
spending, interest rates, and money supply. In actuality, the effects of external variables are
stronger and more immediate than those of internal ones. The direct causality between the
exchange rate and the inflation in the rest of ASEAN and Malaysia can be used to evaluate this.
Given that Malaysia's economy has always been open and global in nature, with active foreign
trade, technology transfer, and foreign direct investment, these conclusions are understandable.
With regard to intra-ASEAN commerce, recent economic changes in Malaysia have increased
interaction between the nation and the other ASEAN members. As a result, Malaysia might
more quickly learn about pricing volatility in other ASEAN countries. On the other hand, the
dominant effects of foreign materials need to be taken into consideration carefully. The structure
of the CPI, which places a strong emphasis on control items and causes domestic effects to be
overstated, may be to blame for the prevalence of external influences on domestic inflation rates
as opposed to internal reasons. It is recommended that in future research, the empirical
analysis takes into account the impact of control items on domestic prices. The ASEAN financial
crisis that hit the region in July 1997 led to a severe depreciation of the Malaysian Ringgit. The
economy is currently under extraordinarily high inflationary pressure as a result of the rise in
import costs, notably for capital and intermediate goods. In addition, the rapid depreciation of
the Ringgit has increased the price level in Malaysia due to the high demand for its goods
outside. As a result, inflation rises to prominence and the government once more places a focus
on macroeconomic control.
 3

In Malaysia, there are four different types of inflation: sector inflation, wage inflation, and
cost-push inflation. Typically, administered price inflation is used to refer to pricing power
inflation. When business owners and industries decide to raise the price of their goods and
services in order to boost profit margins, inflation of this kind results. One thing to note is that
pricing power inflation doesn't happen during financial crises, economic depressions, or when
the economy is weak because oligopolies have the capacity to set prices for their products and
services, this sort of inflation is also known as oligopolistic inflation. No company is able to raise
its prices above what they would be in a situation of perfect competition. In an oligopoly, all the
businesses would have to work together to raise prices and increase their financial gains. The
telecommunications industry in Malaysia, which includes companies like Maxis Berhad, Celcom
Axiata Berhad, Digi.Com Berhad and others is an example of oligopoly. Due to the strong
demand from Malaysians, the telecommunications industry is thriving in the twenty-first century.
It's because the government mandated that both employees and students from secondary
school through university take distance learning courses online. This might cause the cost of
communications and the internet to rise.

When the cost of the goods and services produced by a certain sector of industries
rises, sectoral inflation occurs. In essence, the other industries that are closely tied to the oil
industry would be directly impacted by an increase in the price of crude oil. Consequently, the
rising cost of fuel has raised significant concerns about the global economy. Consider the
logistics and transportation sectors as an example. The cost of shipping goods and
transportation fees would rise along with the price of oil. Despite the fact that it started in a
 4

single fundamental industry, this would cause widespread inflation throughout the economy. If
this circumstance arises during an economic downturn, there would be layoffs, which would
negatively impact the labor force and the economy.

The cost-push inflation. As the term implies, prices of completed goods and services are
likely to climb significantly if the cost of producing goods and services rises. For instance, a rise
in laborer pay would increase production unit costs, which would cause prices for the linked final
product to increase. Demand-pull inflation may or may not coexist with this sort of inflation.

Due to two factors demand-pull inflation and cost-pull inflation is a result of the pandemic
COVID-19 in Malaysia. A rise in aggregate demand, which is divided into the four
macroeconomic sectors of households, firms, governments, and foreign buyers, results in
demand-pull inflation. The government has decided to issue a movement control order in
response to the spreading COVID-19 epidemic (MCO). As a result, there is an overabundance
of purchasing of needs. According to Darshan Singh, head of the Federation of Malaysian
Consumers Associations (FOMCA), the adverse impacts of over-purchasing items will disrupt
the supply chain, causing inflation. When demand for products and services in an economy
exceeds supply, supply will remain constant and there will eventually be competition for these
items, which will lead to demand-pull inflation. The Department of Statistics Malaysia estimates
that in the first quarter of 2021, consumer spending climbed by 1967 MYR million.

Cost-push inflation, on the other hand, occurs when prices are "pushed up" as a result of
rising costs for any of the four production factors labor, capital, land, or entrepreneurialism and
most usually while businesses are already operating at maximum capacity. Cost-push factors
often appear when the general price level rises as a result of a decline in aggregate supply
brought on by rising production costs. Rising oil prices are one of the elements that affect
production costs. Oil is one of the primary economic inputs, so when oil prices rise, so will
indirectly the cost of production. According to the Department of Statistics, Malaysia's gasoline
prices have increased significantly over the past few months, rising from 0.4 USD per liter in
September to 0.45 USD per liter in December.
 5

The progressive rise in prices of goods and services over time is known as inflation, and
it has both positive and negative effects. If consumer incomes are not rising at the same rate as
inflation, the cost of living will increase and lower consumers' standard of living, which has a
negative influence on their ability to make purchases and generate real revenue. A further effect
of inflation is that businesses and producers will have to raise their prices in response to
increasing expenses and excessive demand. In order to decrease labor expenses, businesses
can potentially downsize their personnel, which could result in higher unemployment rates. The
exporters and importers may experience a temporary or permanent loss of international
competitiveness as it may be difficult to pass on higher production costs in the form of increased
prices. In addition, the workers will experience a decline in their real wages unless their income
rises at the same rate as inflation. If the nominal interest rate is not equal to the inflation rate,
savers will also see a loss in the real value of their savings, and investors will notice that some
investments will be less profitable due to the greater cost of borrowing. Government spending
will also be affected by inflation. Due to the expense of delivering goods and services to the
general people, it will rise. As tax payer income rises and the price of goods and services rises,
tax rates will rise to make up the difference. In contrast, the rises in asset prices, including those
of shares and real estate, are a benefit of the inflation brought on by COVID-19. If there is a
speculative boom in the stock or housing markets brought on by excessive amounts of demand,
asset price inflation may happen. By selling their assets at inflated prices before the eventual
collapse of the speculative boom, speculators profit from the inflation of asset prices.

The CPI, a statistic that evaluates if our income is insufficient to keep up with growing
prices and, as a result, lowers our standard of living, is the one consequence that the majority of
people are aware of. The decision to implement a floating price system for RON95 gasoline and
diesel is the most obvious development in our nation that could have an effect on the CPI for
typical consumers. Uncertainty over the rate of increase in transportation costs is the result.
Higher living expenses will eventually result from the decreased purchasing power.
The causality (cause and effect) principle states that rising inflation and declining buying power
will coexist.
6
 7

ANALYSIS & OPINION

1. FISCAL POLICY

Fiscal policy refers to the use of government spending (G) and tax (T) policies to
influence economic conditions, especially macroeconomic conditions, including
aggregate demand, employment, inflation, and economic growth. Policies to lower
cost-push inflation are pretty similar to those to lower. The Malaysian government can
modify tax and spending levels in order to affect the level aggregate of demand and
demand-pull inflation. In order to lessen inflation, Government pressures may result in
higher taxes and lower spending. The overall demand will go down as a result. Interest
rates could rise or the Malaysian government could adopt a deflationary fiscal strategy
(more taxes, less expenditure). As a result, borrowing would be more expensive, and
consumer and business investment would decline. Although employing higher interest
rates will reduce inflation, the drawback is that it could result in a significant decline in
GDP. Refer to the primary fiscal deficit considerations the Malaysian government made
in 1998–2002 in response to the Asian financial crisis of 1998. The government must
make sure that revenue can cover operating costs, thereby maintaining a current
account surplus at all times, as well as that both domestic and foreign financing is
available without driving out the private sector and that debt service does not exceed
20% of total operating costs. These are done in order to maintain a reasonable amount
of national debt.

2. MONETARY POLICY

Monetary policy is monetarily undertaken by the government to achieve the

government’s objective using monetary instruments or tools. This action is undertaken
by a nation’s central bank (BNM ) to achieve macroeconomic goals that promote
sustainable economic growth. One option that the Bank Negara has to combat inflation
is to put this into action. The overnight policy rate (OPR), as anticipated by the market,
was maintained at 1.75% by Bank Negara following the Monetary Policy Committee
(MPC) meeting, the story claims.
 8

The sixth consecutive MPC meeting at which the OPR has been kept at a
record-low level is depicted in this diagram.

BNM maintains OPR

In its first monetary policy committee (MPC) meeting of the year, Bank Negara
Malaysia (BNM) kept the overnight policy rate (OPR) at 1.75%. Since the central bank
reduced the rate from 2% on July 7, 2020, it has been held at 1.75%, the lowest level
ever. The analysts also concur that the current interest rate is appropriate for supporting
the economy. Despite the heightened uncertainty brought on by the pandemic, supply
chain disruptions, and the delay in the economy's reopening, the OPR is expected to be
kept at 1.75%. Despite the downside risk to growth, it is less likely that the important
benchmark interest rate will be increased this year than it will be next. Last but not least,
it is also said in the report that the central bank is anticipated to maintain a loose
monetary policy given how poorly the economy is performing.
 9

CONCLUSION

A phenomenon known as inflation causes a long-term upward tendency in the general

level of prices in the economy. When there is "too much money chasing too little things,"
inflation also exists. The main causes of inflation are price increases brought on by rising
production costs, such as raw material and labor costs. Inflation can also be brought on by an
increase in demand for goods and services because consumers may be willing to pay more for
a particular good or service. Inflation is the gradual loss of a currency's purchasing power, and
unless interest rates are greater than inflation, inflation will also lower the value of money.
Inflation has advantages and disadvantages of its own, and policymakers typically agree that an
ideal inflation rate is 2 percent or slightly less. To avoid its drawbacks and negative effects on
our nation's economy, the government should constantly monitor the rate of inflation.

Following the economy's deflation in 2020, inflation rates are rising in COVID-19.
Following the nationwide expansion of the immunization programme in Malaysia, the country's
economy will return to inflation in 2021, rising to 2% percent. The Malaysian government's
programme has made its citizens feel safer going to work and shopping. As a result, the
economy is doing better than it did last year.
The Malaysian government has employed and may continue to utilize a number of
strategies to combat this inflation, including reserve requirements, price controls, monetary
policy, and fiscal policies (strategies to lower cost-push inflation). These techniques can assist
the government in lowering Malaysian inflation and managing the national economy. In order for
the nation's economy to improve and for it to become a developed country, the government
plays a major role.
 10

REFERENCE
1. Fernando, J. (2021, June 17). Guide to Inflation. Investopedia.
https://www.investopedia.com/terms/i/inflation.asp

2. Amadeo, K. (2021, April 30). Inflation, How It's Measured and Managed. The balance
https://www.thebalance.com/what-is-inflation-how-it-s-measured-and-managed-3306170

3. Coronavirus. (2020, January 10). WHO.

https://www.who.int/health-topics/coronavirus#tab=tab_1

4. 2020 Inflation: The 2% That Will Affect Malaysian Consumers’ and Businesses’ | Sales
Training Malaysia - Sales Ninja Training. (n.d.). Sales Ninja. Retrieved July 3, 2021
https://salesninja.asia/2020-inflation-malaysia/

5. Analytics, M. (n.d.). Malaysia Consumer Price Index (CPI) | Moody’s Analytics. Moody’s
Analytics. Retrieved July 3, 2021
https://www.economy.com/malaysia/consumer-price-index-cpi

6. What Is COVID-19? (n.d.). Coronavirus. Retrieved July 3, 2021

https://coronavirus.dc.gov/page/what-covid-19

7. Kramel, L. (2021, April 27). What Is Fiscal Policy? Investopedia.

https://www.investopedia.com/insights/what-is-fiscal-policy/

8. Bank Negara Malaysia. (2020). monetary and fiscal developments. Monetary and Fiscal
Developments
https://www.bnm.gov.my/documents/20124/830906/Chapter2.pdf

9. Vijayaledchumy, V. (2003). fiscal policy in Malaysia. Fiscal Policy in Malaysia, 173–179.

https://www.bis.org/publ/bppdf/bispap20p.pdf

10. Statista. (2021, May 12). Inflation rate in Malaysia 2026.

https://www.statista.com/statistics/319033/inflation-rate-in-malaysia/

11. Dhesi, D. (2021, July 7). Bank Negara likely to keep OPR unchanged. TheStar.
https://www.thestar.com.my/business/business-news/2021/07/07/bank-negara-likely-to-k
eep-opr-unchanged

12. (2021, March 25). Malaysia records positive inflation, OPR expected to remain. The
Malaysian Reserve.
https://themalaysianreserve.com/2021/03/25/malaysia-records-positive-inflation-opr-exp
ected-to-remain-unchanged/

13. Trading Economics. (n.d). Crude oil. Retrieved from

 11

https://tradingeconomics.com/commodity/crude-oil

14. SANUSI, R. M. (2021, June 30). Harga barang naik sebab pengguna beli berlebihan.
https://www.sinarharian.com.my/article/76422/KHAS/Covid-19/Harga-barang-naik-sebab
-pengguna-beli-berlebihan

15. Trading Economics. (n.d). Malaysia Gasoline Prices.

https://tradingeconomics.com/malaysia/gasoline-prices

16. Rahman, N.A. (2020,March 27). Siasat kenaikan harga barang.

https://www.bharian.com.my/berita/wilayah/2020/03/669862/siasat-kenaikan-harga-bara
ng

17. Muner, A.A. (2020, November 11). Lebih 30,000 syarikat tutup operasi akibat Covid-19,
kata menteri.
https://www.malaysiakini.com/news/550500

18. O'Connell, M. Paula, A. D.Smith, K. (2020, November 04). Spending dynamics and
panic buying during the COVID-19 first wave.
https://voxeu.org/article/spending-dynamics-and-panic-buying-during-covid-19-first-wave

19. Saari, M.Y. (2020, March 26). Krisis COVID-19 buka ruang reformasi ekonomi.
https://www.bharian.com.my/rencana/komentar/2020/03/669454/krisis-covid-19-buka-ru
ang-reformasi-ekonomi