The unwanted consequence

INFLATION has been a big theme around the world as the commodity boom fuelled by the ongoing global economic recovery together with a world awash with liquidity.

Prices of raw materials have gone up and that will mean it will be more costly to make goods if prices remain elevated.

One industry that is sensitive to price passthroughs is the car industry.

With the economic recovery that will happen here eventually, demand for cars will surely pick up faster than it has been even with the aid of the tax-free holiday for the purchase of cars.

The price of aluminium that has gone up is reportedly going to hit the price of electric vehicles and even combustion engines whose engine blocks and chassis are made out of metals.

Not helping is the squeeze in the supply of semiconductors which has made the production of cars more difficult.

The constraints in the supply chain will mean fewer cars being made and that will only exacerbate the problem.

But for Malaysia, the economic recovery will eventually mean a boom in domestic demand.

That has to be matched with increased employment and job security but the one thing that we do not have which is acutely being felt in the western world is a shortage of labour.

If wage inflation will remain subdued the question will remain just how much can the consumer take advantage of the pent-up demand to fuel economic growth.

The fear is the economic recovery may not be matched with rising wages as it is likely that companies will be hesitant in the early days of the recovery to expand aggressively, even though it has been shown that those who do are the ones that will really win in the longer term if they are bolder than their competitors in capturing market share.