HIGH inflation has put paid to the prime minister’s boast that Malaysian cost of living is the lowest in Southeast Asia, The Edge Markets reports today.

In the report, MIER executive director Emeritus Professor Dr Zakariah Abdul Rashid said high inflation had curtailed Malaysians’ buying power in the first half of the year.
  
“2017 is a year of high prices. The high inflation phenomenon has contributed to lower real income,” he said. 

The inflation rate has averaged 4% in the first eight months of the year, which is considered high, he said.

For comparison, Malaysia’s headline inflation, as measured by the Consumer Price Index, was   2.1% last year. 

Prime Minister Najib Razak, citing the Economist Intelligence Unit’s 2017 global survey, said in April that Malaysians were enjoying the lowest cost of living in Southeast Asia, thanks to government policies and programmes.

Malaysia’s GDP also saw a higher than expected growth, at an average 5.7% year-on-year, in the first half of the year.   

Zakariah, citing Statistics Department data, said the real increment for household income between 2014 and 2016 was was 3.7%. 

“Some media reported there is (a) disconnect between economic growth and what people actually feel. There is some truth to it. GDP (gross domestic product) does not represent people’s welfare or household income. GDP is on the overall economy, and people’s welfare is part of that,” he said.

Zakariah is hoping that Budget 2018, which is to be unveiled next Friday,  will address the issue of rising cost of living. 

“It is an issue because of insufficient household income. Something has to be done to supplement household income.There are many ways to do it, tax reduction or (an) outright grant will help a little in increasing disposable income,” he said.

“In Malaysia, 85% of household income comes from salary and wages, the balance is non-wages. So it’s important to raise salaries, but it will be a challenge for [the] government to increase civil service wages because they have set a budget deficit target,” he said. 

Malaysia aims to achieve a fiscal deficit of 3% to GDP this year.

Zakariah said there is room to raise salaries in the private sector as compensation to employees over GDP ratio remains low. 

“The value added in production has to be shared between workers and capital owners. According to the 11th Malaysia Plan, we are targeting to achieve 37% by 2020… now we are 34% to 35%. If you look at the trend, we are improving, but it is still slow,” he said.

In contrast, Zakariah said Singapore’s compensation to employees over GDP ratio is about 40%, while some Organisation for Economic Cooperation and Development countries have reached above 50%.

“But Malaysia has to change in a gradual manner. The implementation of (a) minimum wage could help us move in that direction,” he said. – October 20, 2017.