Inflation in Malaysia

Talk by DAP and Member of Parliament for Bandar Melaka, Mr. Lim Kit Siang, to the Malacca Rotary Club at Malacca Regal Hotel on Wednesday, 27th February, 1974 at 8.00 p.m.

Inflation in Malaysia

For the last two years, inflation has become our No. 1 national problem. Not a day passes without some new price increase or other, pushing up the cost of living in Malaysia.

According to official figures, Malaysia’s consumer prices increased by over 10% in 1973 as compared to 3.2% in 1972.

It maybe asked why we should be concerned about inflation, and why should there be a need to do anything about it.

The simple answer is that it make inequalities worse, both of income and of wealth, and is especially harmful to the poorer sections of the community. Inflation is one of the major causes of the mounting industrial unrest in various parts of the country. Unless inflation is brought under check, the Second Malaysia Plan objective to eradicate poverty by raising income levels for all Malaysians, irrespective of race, is doomed to failure.

Without the disequalising effects of inflation, there is already grave disparity in the distribution of wealth and income in Malaysia. This disparity, instead of narrowing, is widening with every year of national development.

A study of the 1957/58 Household Budget Survey and 1970 Census of Population Post-enumeration Survey, both conducted by the Statistics Department of the Government, shows that during our Independence in 1957, the top one-tenth of the households in Malaysia accounted for 34% of the total income, increasingly their share progressively to 40 % of the households accounted merely for a meagre 16% share of the national income, in 1957. Thirteen years later, in 1970, this meagre 26% share of the national income has shrunk further to only 12%.

The 1970 Survey shows that over 84 per cent of Malaysian households had income below $100 a month while a further 31% had incomes between $100 and $200.

The prolonged inflation in Malaysia has aggravated the disparity in the distribution of wealth and income between the haves and haves-notes, for price increases have the effect of redistributing the income from the workers and the low-income groups to the capitalists, the rich and wealthy.

This is because for the poor and low-income group who earn less than $200, the bulk of their expenditure is on basic essentials, especially food. And it is in food where the highest rate of price increases have been registered.

It has been estimated that although the cost of living of the best off may have gone up by some 15 per cent between December 1972 and 1973, it may have more than doubled for many in the lowest income group, because of the bulk of their expenditure on basic essentials.

The price levels have been further accelerated in January and February this year. Thus, a look at some of the following price changes for these two months alone will indicate the seriousness of the problem.

January retail price February retail price
100% Siam rice 74 cts a kati 86 cts a kati
China rice 70 cts a kati 80 cts a kati
Govt. rice 44 cts a kati 48 cts a kati
Kedah No.1 55 cts a kati 64 cts a kati
Sugar 45 cts a kati 50 cts a kati
Flour 30 cts a kati 40 cts a kati
Salt 10 cts a kati 15 cts a kati
Biscuits increase by 20 cts a kati
China meehoon 85 cts a kati 95 cts a kati
Local meehoon 70 cts a kati 90 cts a kati
Ikan bilis $2.40 cts a kati 86 cts a kati
Bread 30 cts per loaf 40 per loaf

Cooking oil is of course a class by its own, having increased in price by over 100 per cent in the past year. Meat, fish and milk products are becoming luxuries.

The purchasing power of the lower income groups of Malaysian have literally been halved, creating untold hardships for their livelihood and their ability to maintain their children in schools.

The fight against inflation, to restore the living standards of the lowest income group, should be the paramount concern of all Malaysian. There may not be a magic formula to overcome inflation, but in my view, the following elements should constitute the main components in the package weapon to roll back prices or restore the purchasing power of the lowest income groups.

1. A Cheap Food Policy by bringing down prices of foodstuffs

The best way the Government can help the poor restore their purchasing power or standard of living is to bring down the prices of foodstuffs.

This can be done by a four-pronged approach:

(i) Six-month price freeze of all foodstuffs

The Government should order a six-month price freeze on all foodstuffs to prevent price increases from leapfrogging one after another.

Manufacturers, importers or producers who wish to increase their prices would have to make out a public case to the Government.

(ii) Government subsidies for essential foodstuffs like rice, sugar, flour, cooking oil and milk to bring them within the economic reach of the poor

At present, the government provided a subsidy of 50 cents per gantang for the imported China rice for domestic consumption, but this is very limited, as the subsidy only applies to China rice imported by the LPN, and not by private importers. This is one reason why private importers are chary of importing China rice, causing local rice price to go up.

The Government should extend the rice subsidy on a larger scale, and provide a 10 cents per kati subsidy for flour and five cents per kati subsidy for sugar so that the prices of flour and sugar will go back to pre-Chinese New Year levels.

Government subsidy for cooking oil and milk should also be provided if it cannot check their price increases.

(iii) Embargo on Export of local foodstuffs

Priority should be given to the standard of living of the poorest Malaysians, who comprise the majority, and not to export earnings by the Government.

One reason for the unprecedented high price for coconut oil is the free export of the product to world markets. Other countries have placed embargoes on the export of local agricultural products when they are inadequate for local needs like Brazil banning sugar exports and the United States banning soya beans exports, although their international prices are good. Malaysia should do the same put the interest of Malaysians before others.

(iv) Campaign to encourage Malaysians to grow more food

The Governments should embark on an energetic campaign to encourage Malaysians to grow more foodstuffs. Although this is one of the Government’s objectives, it has not been elevated into a national campaign.

One thing I notice is that in this fight against inflation, the State Governments appeared to be a bystander. The fight against inflation should not merely be the responsibility of the Ministry of Trade and Industry, but also of all State Governments.

The State Governments can play a very important role, because land is a state matter. All State Governments should take part in a national ‘grow more food’ campaign, by parceling out available arable land for this purpose to Malaysians, probably on a T.O.L. basis.

If a sustained effort in this direction had been made in 1972, probably the prices of foodstuffs would not have skyrocketed so fantastically.

Other elements in the package weapon against inflation to help the poor restore their living standards should include the following:

(2) The Establishment of a Fair Prices Tribunal

In my mind, one of the causes of inflation is that manufacturers and importers want to captitalise on this period of inflation, not only to maintain their previous high levels of profitability, but even to exceed their previous profit margins – regardless of the hardships caused to the consumers.

The Mid-Term Review of the Second Malaysia Plan admitted this; thus on page 112, it is stated: “However, with continuing and larger increases in import prices, the impact on domestic retail prices appears to have been accentuated possibly by attempts to restore or even increase distribution margins.”

The establishment of a Fair Prices Tribunal with power to veto any price increase, or receive complaints by consumers about any unfair pricing, will go a long way to eliminate profiteering.

The present practice whereby the Government approves prices increases on essential commodities like sugar, flour, oil after hearing representations from the companies without giving a fair hearing to the consumers is most unsatisfactory.

It has been rightly said: “He who decides a case without hearing the other side… though he decides justly, cannot be considered just.”

The existence of a Fair Prices Tribunal with powers to hold public hearings on the pros and cons of a price increase will remedy this grave defect.

(3) Wage increases to restore the purchasing power of the workers and low-income groups

The maximum of $30 of special relief allowance which the Government awarded low-salaried employees in October last year to help them to restore their purchasing power have been wiped away by further inflation since then.

Workers in both private and public sectors should be awarded wage rises commensurate to the restoration of their purchasing power, so that there is no fall in living standards.

(4) A strong consumer movement

A strong consumer movement to protect the interests of consumers against profiteers, speculators and hoarders is vital in safeguarding the living standards of the poorest section of Malaysians. The Consumers Association of Penang has been very active and now and then we hear of activities by the Consumers Association in Negeri Sembilan, Selangor and Perak. Although I hear there is a Consumers Association in Malacca, it appears more dead than alive.

This should be immediately remedied, and men dedicated to the cause of consumerism should provide life and direction not only to the consumers association of Malacca, but also throughout Malaysia.