Higher in­fla­tion

The Star Malaysia - StarBiz - - Short Position -

THE al­ready high cost of liv­ing is about to get higher in the com­ing months and Malaysians should brace them­selves for it.

Why? Crude oil prices are ris­ing. From June 21, when prices were at the low­est for the year, to Sept 14, Brent, the global bench­mark, has jumped 21.56% while the US bench­mark WTI has risen 16.13%.

When crude oil prices broke the US$50 a bar­rel level late last year and into this year, con­sumers felt the pinch. Head­line in­fla­tion was at its high­est led by trans­porta­tion and fuel costs in March be­fore ta­per­ing off as oil prices dropped into a trad­ing range in the low to mid-US$40s.

Brent has gone back to above US$50 and should WTI break above the US$50 level, there is a pos­si­bil­ity it will go back to the mid-US$50 trad­ing lev­els. Trans­porta­tion and fuel costs will rise in tan­dem and this will have a spillover ef­fect on other prices.

Be­cause of the high-base ef­fect (in­fla­tion was ris­ing late last year into this year), it looks like in­fla­tion is mod­er­at­ing when com­par­isons are made. But when volatile fuel and food prices are stripped off from the con­sumer price in­dex, core in­fla­tion, which re­flects the preva­lence of in­fla­tion, is ac­tu­ally ris­ing.

The grouses of con­sumers, de­spite the best ef­forts of pol­i­cy­mak­ers to ex­plain, are real where prices are con­cerned. The high cost of liv­ing, cou­pled with low wages, will mean that house­holds that spend the bet­ter por­tion of their in­come on ne­ces­si­ties such as food, hous­ing and trans­porta­tion, will feel the im­pact even more.

The econ­omy looks like grow­ing at a healthy pace this year ver­sus the doom-and­gloom at the be­gin­ning of the year. But the growth rate is not re­flected in con­sumer sen­ti­ment.

Will the un­ex­pect­edly good per­for­mance of the econ­omy this year re­flect in the wages of or­di­nary wage earn­ers in the com­ing year? Be­cause it is of no use to say that the econ­omy is grow­ing when the ben­e­fits do not trickle down to wage earn­ers.

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