Inflation and Its Impacts in Malaysia

3354 Words Jun 7th, 2013 14 Pages

Title Page 1. Introduction 2 2. Discussion of the issues 2.1 Inflation 2.1.1 Definition of inflation 3 2.1.2 How inflation is measured 3 2.1.3 The causes of inflation 4 2.2 In the context of Malaysia’s economy 2.2.1 Inflation rate in Malaysia 4-5 2.2.2 Consumer Price Index (CPI) in Malaysia 5-6 2.2.3 Average monthly household expenditure in Malaysia 6-7 2.2.4 Salary growth in Malaysia 8-9 2.3 The impact of inflation on consumers’ living patterns 9 2.3.1 Housing 9-10 2.3.2 Electricity 10 2.3.3 Fuel 10 2.3.4 Transportation 11 2.3.5 Food 11 2.3.6 Clothing 12
3. Conclusion and
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2.1.3 The causes of inflation

There is so far no one definite cause for inflation, but two reasons could be summarized (Investopedia What is Inflation). The first reason is demand; when demand is growing faster than supply, prices will increase, hence caused inflation. This will usually occur in growing economies. And the second reason is cost; when demand rises, firms increase their demand for resources such as additional labour and machineries, hence the rise in production costs and caused inflation. In short, “a key feature of inflation is that it relates to the amount of demand in the economy. Inflation tends to rise when, at the current price level, demand for goods and services in the economy is greater than the economy's ability to produce goods and services - its output. One of the original descriptions of inflation remains valid - too much money chases too few goods.”(Bank of England What causes inflation)

2.2 In the context of Malaysia’s economy

2.2.1 Inflation rate in Malaysia
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The inflation rate in Malaysia was reported at 3.1% in July 2011. From 2005 to 2010, the average inflation rate in Malaysia was 2.77% reaching an historical high of 8.5% in July 2008 and a record low of -2.4% in July 2009 (Trading Economics Malaysia Inflation Rate). The downward sloping inflation rate starting from 4Q08 to a record low of -2.4% inflation rate in July 2009 could