Deflation really?

Recently, according to the Department of Statistics, the “inflation figure” in the country has not only de-escalated but actually declined. In other words, Malaysia is now in a deflation situation, not just disinflation.

With that one month’s statistics, suddenly everyone is talking about possible recession and slower economic growth. We are urged to stay calm and keep spending a bit more to keep the economy buoyant.

All the shortcomings of deflation, such as slower growth, higher unemployment, poorer business sentiment and a possibly falling stock market, were put in the forefront to caution the people.

I am sorry to say this: I think we should cut all the crap and stop the baloney. Despite the official statistics, who actually has experienced deflation in this country?

The Consumer Price Index (CPI) became meaningless a long time ago, and it will probably remain meaningless for the present and in the future. I think the sooner we recognise this, the better.

Prices are not meant for us to simply amalgamate and average across the country. How did we get a “real” deflation situation in the first place? It must be due to certain technicalities or the “level” effect, which serves no particular purpose really.

I only know the prices in this country have only one direction — up rapidly. I think we should not let the official CPI fool or lull us.

Prices have gone up much faster than past CPIs have indicated. It is not a benign 1-2% as we are generally made to understand.

It is time to recognise that inflation in this country is a monetary phenomenon, not a temporary supply hiccup situation. It has become a permanent feature.

Instead of calculating CPI, why don’t the authorities go to the wet markets, coffee shops, restaurants, hawker centres, or fast food joints and see for themselves how the prices have escalated over time?

Instead of talking about deflation, just record the prices and see whether the increase was as indicated by the CPI, or in line with growth in nominal wages and income.

Price control and enforcement alone can’t solve inflation and cost of living problems that are structural in nature.

We must really get to the bottom of things why our ringgit is losing value, just like in many poorly-managed Third World countries.

How we look at a problem will determine how we solve it. If we argue many can’t afford to buy a house because the prices are high, we are essentially looking at the housing market and people’s nominal income.

But if we look at non-affordability as due to the ringgit losing its value and “robbing” people of their savings, we are likely to come up with different solutions.

TK Chua is an FMT reader.

The views expressed by the writer do not necessarily reflect those of FMT.