19 February 2022
7
Let’s Talk Economy with Herniza
Post Pandemic Crisis: Soaring
Inflation and the Rise of Omicron
By Herniza Roxanne Marcus
A
s we enter the third year of the
pandemic, it seems that the pan-
demic still maintains its grip which
causes a persistent uncertainty for
global economy. After a series of
mutation since the year 2020, now the new
strain of Omicron has taken its turn after Delta.
Although the symptoms for this variant are
slightly different from the previous strains, still
it is something that can invariably disrupt the
economic recovery. Worse, this time around
the world is also struggling with the surge of
inflation. The inflation is mainly caused by the
increase in the energy and food prices, togeth-
er with the supply chain disruptions as some
of the countries have renewed their travel and
mobility restrictions.
Along with these restrictions, labour short-
ages have also increased, which later can con-
tribute to the lower economic growth. Some
challenges, on the other hand, may be more
temporary than others.
Omicron appears to be associated with
less severe sickness than that of Delta, and the
unprecedented outbreak of infections is ex-
pected to fade rapidly. According to the Inter-
national Monetary Fund's most recent World
Economic Outlook, while Omicron will have
impacts on the activities in the first quarter of
2022, the effect will fade in the second quar-
ter. Hopefully this is true.
For Malaysia, in January 2022, Bank Nega-
ra Malaysia (BNM) also has projected that un-
certainties about the emergence of new vari-
ants of concern, the risks of prolonged global
supply disruptions, and the risks of heightened
financial market volatility as major economies
adjust their monetary policies in response to
the surge in inflation would continue to weigh
on the global growth outlook.
For the months of January through No-
vember 2021, headline inflation averaged 2.3
percent. As the base effect from fuel inflation
fades, average headline inflation is projected
to remain mild in 2022. As economic activity
normalises in the face of high input costs, un-
derlying inflation, as measured by core infla-
tion, is projected to rise.
Nonetheless, core inflation is likely to re-
main modest, with upside risk limited by the
economy and labour market's persistent slack.
However, the prognosis is still influenced by
global commodity price movements, as well
as the danger of lengthy supply interruptions.
Our main concern is that, if the inflation
keeps on maintaining its grip, the one who
suffers the most is of course the people. Not
just for those in the B40 category, but also for
those in the M40’s. Among the effects of in-
flation are the widening income gap between
the poor and the rich, which can contribute to
the higher rate of poverty.
As Hari Raya celebration is getting closer,
usually the government will impose the ceiling
price to control the price of some commodi-
ties especially the chicken, but this action can
also harm the entrepreneurs, especially those
in the Small Medium Industries (SME). It is
because the government has been controlling
the price since the past few months, which ac-
tually is meant to help the people but at the
same time, if the ceiling price is imposed for
too long, it might actually harm the industry
especially the producers. If the price keeps on
decreasing as a result of the maximum price,
the producers may find it difficult to supply
at the lower price for so long. Thus, when the
supply is disrupted, the pressure will be on the
price.
Another question is whether raising the
minimum wage is the right thing to do to meet
people's needs. The thing is, while raising the
minimum wage may benefit those in need, it
will be a burden for producers because it will
result in higher production costs. And the cost
is determined by the company's long-term vi-
ability.
Another concern is for those who are
in the Small and Medium-Sized Enterprises
(SMEs), because most of them, particularly in
lower-growth states like Sabah and Sarawak,
will find it difficult to pay higher wages to their
employees. However, this does not imply that
this method is ineffective; rather, we must
exercise caution before raising the minimum
wage. As a result, if the company is unable to
sustain itself, it will face the risk of bankrupt-
cy, which will contribute to higher unemploy-
ment rates in the future and, of course, lower
economic growth. Stagflation was a term used
previously to describe this type of crisis.
Stagflation is also known as the reces-
sion-inflation crisis. When stagflation occurs,
the government will have a difficult time de-
ciding which policy will be most effective in
Herniza is a lecturer in the Faculty of
Business and Management (Economics)
at UiTM Sabah. She is passionate about
the economy and how it affects people’s
daily life.
controlling the economy. Having said that,
let's hope that the prediction of inflation
fading away in the second quarter comes
true.
The most important thing now is that
we can control the spread of Omicron
without having to resort to yet another
round of movement control order (MCO),
among other things. Should that happen,
it will be extremely difficult for the econ-
omy to recover and the people will suffer
even more.
We must be aware that this year is not
like the year 2020 and 2021 where we suf-
fered because of the economic recession.
As the monetary policy and fiscal policies
keep on helping the economy to boost its
spending, with the pandemic is still on the
rise, the accommodative plans invite the
inflation. Most governments in the world
have announced their bailout packages
for at least four to five times a year to help
the biggest component of aggregate de-
mand in economy boosted consumption
by the households.
For the time being, the situation is
manageable until the inflation subsides,
but the government should take action by
reaching out to individuals who have been
adversely affected, not only by the virus
but also by the natural disaster. Because
we are in the midst of an inflationary
period, the government must alter what
was proposed in Budget 2021, as well as
other packages, to reflect the present eco-
nomic situation. This is critical in order for
the government's plan to align with our
economy's current state and, at the very
least, prevent stagflation, a condition in
which the economy experiences both an
increase in inflation and stagnation in eco-
nomic output.