Analysts say food inflation still a big problem for many households

THE headline numbers are certainly encouraging. Malaysia’s gross domestic product (GDP) growth is strong and the financial sector seems to be in the pink of health.

While the broad numbers tell a story of improving national wellbeing, and with the ringgit gradually appreciating against the dollar, anecdotal evidence on the ground suggests hardships that are told in drips and drabs and are rarely collated into a single public source.

For many households, especially the Bottom 40 (B40) and the middle 40 (M40), the struggles have been voiced out through the rising cost of living.

“The main grouses of the man on the street and even some small and medium-sized businesses are that they are not feeling any better off even as the economic growth has delivered a strong performance in recent quarters and is likely to continue in 2018,” says Socio Economic Research Centre executive director Lee Heng Guie.

“While better GDP growth numbers help to boost confidence, what really matters to the households is their real purchasing power and disposable income, as well as living standards. Contained cost of living, easing prices of goods and services and sustained income growth via better salary increments are key to lifting sentiment.”

According to the Department of Statistics’ 2016 Household Income and Basic Amenities survey, the median monthly household income for Malaysians increased to RM5,228 in 2016 compared with RM4,585 in 2014, with a growth rate of 6.6% per annum at nominal value. It has been reported that these growth rates are below the compounded annual growth rate of 10.1% between 2009 and 2014.

Between 2014 and 2016, the mean monthly household consumption expenditure for Malaysia increased from RM3,578 to RM4,033, a growth of 6% per annum at nominal value. Although there is more money to be spent, those healthy gains are being eroded by jumps in inflation, which rose 3.7% in October.

The headline inflation number may be well below the annual rise in household income, but what has bitten into the wallets of households has been the increase in the cost of food.

Fuel prices have been volatile and have driven up overall inflation, but it has been the price increase in everyday food items that has caused most of the headaches.

The price of fish, like the Indian Mackerel, labelled the poor man’s fish, cost RM13.84 a kg in October based on official statistics from RM12.39 a year ago.

It is just one example of many food items that have experienced a jump in price. The food component of the consumer price index or CPI, apart from fuel prices, increased the most by 4.4%.

The reason food inflation is a big problem for households is the amount people spend on food. One report says that the bottom 10% of households by income spend about 70% of their income on food, and it is this group that is most susceptible to variations in food prices.

The other element has been the disconnect between urban and rural spending. With costs still low in rural areas, it has been said that spending in the villages and rural areas tend to be lower than urban areas when it comes to food inflation.

Bank Negara also illustrates just how much living costs have hurt savings. Using the example of a household earning RM5,000 a month, it has just RM43 to save every month after paying for a loan on a RM300,000 house and on monthly expenses based on the Household Expenditure Survey 2014 by the Department of Statistics.

Looking at data on savings deposits, the number has basically stagnated at the RM150bil level for much of the year.

Rise in spending

One element of data that has piqued the curiosity of economists has been consumption growth. At a growth rate of 7% between January and September of this year, that number suggests that spending is still healthy.

While it is said that the M40 and the Top 20 in terms of income earners account for roughly three quarters of consumption in Malaysia, Maybank Investment Bank in a report notes that the rise in employment, which was up 2.1% to 14.54 million in the third quarter of this year, and private sector wages and salaries, up 7.4% during the same quarter, along with cash handouts by the Government, are responsible for keeping consumption up.

The rise in e-commerce too has been a factor that has seen retail sales numbers compiled by Retail Group Malaysia slipping by 1.1% in the third quarter.

One other aspect of the strong economic growth has been in exports. This is up by more than 20% for the first three quarters of the year, but its linkages with the domestic economy is not as strong as housing and construction in the country.

One cement company says the bump in construction work is not sufficient to overcome the slump in housing demand, hence the multiplier impact to the domestic economy will be more pronounced.

“Apart from the contrasted picture painted by the different sources of retail trade data, the mixed sentiment between headline GDP growth and the feeling of the people on the ground could be because the recovery in economic growth this time is very much export-driven,” says RHB Research Institute in a note this week.

“On the other hand, businesses that cater to the domestic market are being unsettled by domestic issues. These include a sudden cut in public spending, sluggish housing and non-residential construction activity, the rising cost of doing business and income tax collection. We believe these issues could continue to pose a drag to domestic-oriented companies in 2018.”

The headline GDP number always brings a feel-good element to consumer sentiment. In time, a steady sequence of good economic data will translate to better employment and wages.

“Besides sustaining a healthy pace of economic growth, a steady performance of the ringgit, purchase of consumer durables, continued economic activities and job creation should signal a sense of vibrancy in the economy. When people see that things are happening in the economy and confidence improves, that should get them out spending,” says Lee.

Apart from the contrasted picture painted by the different sources of retail trade data, the mixed sentiment between headline GDP growth and the feeling of the people on the ground could be because the recovery in economic growth this time is very much export-driven.