Macroeconomics

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  • 1. SHD 1123 PRINCIPLES OF MACROECONOMICS SEMESTER 2 2008 /2009 GROUP ASSIGNMENT TOPIC: QUESTION 2 LECTURER: PROF. DR. ABDUL AZIZ BIN BUANG SECTION: 04 GROUP MEMBERS: YEOH SIEW CHING TAN KHER XIAN TAN SUE LING TEH JA YING 1
  • 2. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Speaking of CPI, there are variations there also. CPI-U represents the index for all urban consumers and is the most commonly used index for escalation of taxes, wages, etc. Then there is the CPI-W, the CPI for urban wage earners and clerical workers. There are major uses of CPI such as an economic indicator, as a deflator of other economic series and as a means of adjusting dollar values. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poorer, the unemployed, and retired people, as well as urban wage earners and clerical workers. The spending patterns of people living in rural non-metropolitan areas, farm families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals are not included in the CPI. Consumer inflation for all urban consumers is measured by two indexes, namely, the Consumer Price Index for All Urban Consumers (CPI-U) and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that also meet two requirements which are more than one-half of the household's income must come from clerical or wage occupations, and at least one of the household's earners must have been employed for at least 37 weeks during the previous 12 months. The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. A cost-of-living index is a conceptual measurement goal, however, and not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to 2
  • 3. also take into account changes in other governmental or environmental factors that affect consumers' well-being. The proper treatment of public goods is very difficult to determine, for example, safety and education, and other broad concerns, such as health, water quality, and crime, which would constitute a complete cost-of-living framework. CPI not necessarily measure an experience with price change but it is important to understand that BLS bases the market baskets and pricing procedures for the CPI-U and CPI- W populations on the experience of the relevant average household, not of any specific family or individual. It is unlikely that your experience will correspond precisely with either the national indexes or the indexes for specific cities or regions. The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups are food and beverages and examples of these categories are breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks and others. Next group is housing such as rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture. Then group of apparel as men's shirts and sweaters, women's dresses, jewelry. Transportation is also one of the major groups, for example new vehicles, airline fares, gasoline, motor vehicle insurance. Besides, medical care include prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services are inside the groups. Recreation such as televisions, toys, pets and pet products, sports equipment, admissions are in groups too. Education and communication are important too. It includes college tuition, postage, telephone services, computer software and accessories. Last groups are other goods and services such as tobacco and smoking products, haircuts and other personal services, and also funeral expenses. Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services such as sales and excise taxes. Government user fees are also included in the CPI. For example, toll charges and parking fees are included in the transportation category, an entry fee to a national park would be included as part of the admissions index, water and sewerage charges and auto registration fees. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of 3
  • 4. services provided by shelter, which we called owners' equivalent rent, to the extent that these taxes influence rental values. However, the CPI excludes taxes (such as income and Social Security taxes) which is not directly associated with the purchase of consumer goods and services. For certain purposes, one might want to define price indexes to include, rather than exclude, income taxes. Such indexes would provide an answer to a question different from the one to which the present CPI is relevant, and would be appropriate for different uses. The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. These items are related to savings and not to day-to-day consumption expenses. Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the country, to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of ten when they previously were sold by the dozen) of the good or service since the last time prices were collected, the economic assistant selects a new item or records the quality change in the current item. They check the data for accuracy and consistency and make any necessary corrections or adjustments, which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change. Although CPI is widely used, it still has the drawbacks of using the CPI as a measurement of the rate of inflation. There are two basic types of limitations in measurement which are sampling errors and non-sampling errors. Sampling errors is due to the CPI measures price changes based on a sample of items, the published indexes differ somewhat from what the results would be if actual records of all retail purchases by everyone in the index population could be used to compile the index. These estimating or sampling errors are limitations on the accuracy of the index and not mistakes in calculating the index. The CPI 4
  • 5. program has developed measurements of sampling error, which are updated and published annually on the CPI home page. The CPI sample design allocates the sample in a way that maximizes the accuracy of the index, given the funds available. Then, for non sampling errors are errors occur from a variety of sources. Unlike sampling errors, they can cause persistent bias in measurements of the index. Non sampling errors are caused by problems of price data collection, logistical lags in conducting surveys, difficulties in defining basic concepts and their operational implementation, and difficulties in handling the problems of quality change. Non sampling errors can be far more hazardous to the accuracy of a price index than sampling errors. Hence, BLS expends much effort to minimize these errors. Highly trained personnel ensure the comparability of quality of items from period to period, collection procedures are extensively documented, and recurring audits are conducted. The CPI program has an ongoing research and evaluation program in order to identify and implement improvements in the index. The CPI is subject to both limitations in application and limitations in measurement. Limitations of application are the CPI may not be applicable to all population groups. Also, the CPI does not produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor. BLS does produce and release an experimental index for the elderly population. However, because of the significant limitations of this experimental index, it should be interpreted with caution. The CPI cannot be used to measure differences in price levels or living costs between one place and another as it measures only time-to-time changes in each place. A higher index for one area does not necessarily mean that prices are higher there than in another area with a lower indexed. It merely means that prices have risen faster in the area with the higher index since the two areas' common reference period. The total change in living costs cannot use CPI as a measurement because changes in these costs are affected by those are beyond the definitional scope of the index and so are excluded, for example the social and environmental changes and changes in income taxes. 5
  • 6. One of the most important economic concepts is inflation. At its most basic level, inflation is simply a rise in prices. Over time, as the cost of goods and services increase, the value of a dollar is going to go down because you won't be able to purchase as much with that dollar as you could have last month or last year. Of course, it seems like the cost of goods are always going up, at least to an extent, even when inflation is thought to be in check. Consumer Price Index, or the CPI used to measure inflation. The CPI is a measure of the price of a set group of goods and services. The "bundle," as the group is known, contains items such as food, clothing, gasoline, and even computers. There are certain items in the bundle used to measure the CPI that are extremely volatile, such as gasoline prices. By eliminating the items that can significantly affect the cost of the bundle (in either direction) on a month-to-month basis, the Core rate is thought to be a better indicator of real inflation, the slow, but steady increase in the price of goods and services. Malaysia with its subsidies does not escape the rising international price levels of food and fuel. The Consumer Price Index, CPI which is the most widely used indicator and measure of inflation in Malaysia have shows us on the surface that inflation is under control. The value of money does not remain the same when there is inflation. The value of our ringgit is observed in what it can buy which means its’ purchasing power. In theory, there are two causes of inflation: Demand-Pull inflation – Too much money not enough goods. In economic terms demand is growing faster than supply. However, in real world there are more than two products so the average price of goods and services is the indicator. Cost-Push Inflation – When cost to produce goes up, companies have to increase price to maintain profit margin. Increase cost includes wages, taxes or increased costs of imports. Back in December 2007 prior to general election, our government has decided to increase the salary of public servant. This means more purchasing power for public servant and for all of us that do the grocery shopping we can see the price increase in our shopping bill. Cost of fuel (petrol) goes up recently which resulting in pretty much all items go up because increase in transportation cost of delivering items. Since all items goes up, the salary are bound to go up because the ringgit that we have no longer purchase the same items it used to and thus we have Cost-Push Inflation. 6
  • 7. The beginning of the decade of 1970's saw the emergence of increasing inflationary pressures in the economy. The increase in consumer price was more pronounced during the first half of the decade, 1971-75, when the CPI rose at an average rate of 7.3% per annum as against 4% per annum during 1976-79. The rapid increase in the price level during 1971-75 periods was due to the large increases registered in 1973 and 1974 of 10.5% and 17.4%, respectively. These price increases were generated by a number of factors. In the world economy, especially in the industrialised countries, the industrial boom of 1973 increased aggregate demand well beyond the supply capacity leading to pressure on prices. The oil price increase of 1973 and the shortage of food supplies following crop failures in a number of major food producing countries aggravated the situation. This world economic condition led to a sharp build-up of inflationary pressures which consequently led to sharp increases in the price of imports. The rate of domestic inflation slowed down considerably in 1975 when the CPI rose by only 4.5%. This was the result of an improvement in the international inflationary situation as well as a response to the government anti-inflationary measures implemented in the previous years. During 1976-79, the CPI rose at an average annual rate of 4%, marked by considerable year-to-year variations. While the CPI as a whole did not increase much, some sub-groups of the index continued to exhibit rapid rates of increase. This was due in large part to the government's price control of essential food items such as rice, sugar and milk. As a consequence of these measures, Malaysia enjoyed relative price stability and its rate of inflation was considerably lower than that experienced by most other countries. In all its efforts, the government was conscious of the debilitating impact which inflation has on the economy's ability to mobilise savings and encourage investment, and particular efforts were made to protect the poor from the burden of inflation. Year Inflation, average consumer prices 1970 1.9 1971 1.7 1972 3.4 1973 10.6 1974 17.3 1975 4.6 1976 2.4 7
  • 8. 1977 5.0 1978 4.8 1979 3.7 1980 6.724 1981 9.7 1982 5.834 1983 3.704 1984 3.904 1985 2.587 1986 0.35 1987 0.737 1988 0.29 1989 2.557 1990 3.043 1991 4.358 1992 4.767 1993 3.561 1994 3.701 1995 3.202 1996 3.479 1997 2.655 1998 5.293 1999 2.731 2000 1.551 2001 1.427 2002 1.793 2003 1.074 2004 1.42 2005 3.049 2006 3.59 2007 2.106 2008 2.43 Malaysia has a remarkable record of maintaining a low and stable price environment. On average, headline CPI in Malaysia increased by 3.6 per cent per year in 1980s. During the oil shock in the early 1980s, CPI peaked at 9.7 per cent from 4 per cent before the shock. Despite its robust economic growth in 1980s and 1990s, Malaysia’s inflation rate had been relatively low by international standards.CPI in Malaysia increased by 3.7 per cent per year in the 1990s. Oil shocks in 1980s and 1990s affected consumer price inflation rate in Malaysia. 8
  • 9. Similarly, CPI began to trend upwards in the late 1980s and peaked at 4.7 per cent in 1992 because of the higher oil prices in the early 1990s due to the Gulf War. In the second half of 1997, Malaysia was struck by the Asian financial crisis, which contributed to a severe deterioration in its economic performance in 1998. A 40 per cent fall in the value of the ringgit currency against the US dollar since July 1997 has driven up the price of imported goods. Over the first seven months of the year, the CPI rose 5.2 per cent compared with the same period in 1997. The annual inflation rate as measured by the consumer price index (CPI) stood at 5.8 per cent in July 1998. Earlier this year, the 1998 inflation rate was expected to be between seven and eight per cent, up sharply from 2.7 per cent last year. However, with the economy in a tailspin, pressure on prices appears to be less severe than authorities had feared, giving the central bank, which had long stood by high interest rates to keep inflation in check, room to ease monetary policy. Many economists now expect the annual inflation rate to range between five and six per cent in 1998, fully two percentage points below the central bank's projection. While some trade barriers were raised “temporarily” in the wake of the Asian financial crisis, certain restrictions on foreign direct investment (FDI) were at the same time relaxed, also temporarily. In addition, the Government, by promoting corporate and financial restructuring, has taken steps to address structural weaknesses that became more evident during the crisis. Nonetheless, there are several barriers to trade and investment that still constitute potentially important distortions to competition and thus potential impediments to Malaysia's long-term development. 9
  • 10. Even after the severe regional financial crisis and sharp depreciation of the ringgit in 1997/98, Malaysia’s inflation rate has been contained at a relatively low level. In 2000, Malaysia’s consumer prices increased only by 1.6 per cent and by 1.4 per cent in 2001. In 2002, Malaysia’s consumer prices registered a mild increase when the CPI rose from 1.1 per cent in January to 2.1 per cent in June and July this year. The low inflation environment was due to the absence of cost push and demand pull inflationary pressure. In addition, the low inflation environment was also due to other factors such as the stability of the ringgit peg and low imported inflation from Malaysia’s major trading partners such as the US, EU and Japan. 10
  • 11. In 2004, the average inflation rate was relative low which was 1.42. Several factors will continue to support a low and stable inflation environment in Malaysia. First of all, there is no major resource bottlenecks in the economy as economic activity in Malaysia is expected to continue to grow in line with the country's potential growth. While monetary and fiscal policies remain prudent. The growth in money base remains consistent with a low inflation outlook. As such, there are no threats from the monetary policy that could create a situation of too much money chasing after too few goods. In addition, fiscal policy remains prudent and the Government is on track to achieve its objective of fiscal consolidation. Also, the liberal trade regime in Malaysia will continue to support a low inflation environment. From year to year, the Government continues to liberalise trade by reducing import tariffs in order to reduce cost of doing business in Malaysia. This will not only help maintain competitive price environment, but also boost Malaysia's competitiveness. Finally, stability in the ringgit which is pegged to the US dollar will continue to provide a stable price environment. Much of the speculations that the peg would result in high inflation when it was first introduced in 1998 did not materialise. Thus, under these circumstances, the outlook for low and well-behaved inflation will remain and this will continue to support broad-based economic activities in the country. 11
  • 12. Not withstanding the escalating oil prices, inflation remained at manageable levels in 2005. The consumer price index (CPI) rose by 3% in 2005, driven mainly by adjustments to administered prices. The cost-push price increase was mainly seen in the transport and communication category as the CPI peaked at 3.7% in August, before trending lower to 3% by end-2005. The staggered adjustments to retail petrol and diesel prices and the partial absorption of the price increases by producers due to competition moderated the increase in domestic prices. In addition, greater efficiency of energy usage and continued improvements in productivity helped contain price pressures. As a result, core inflation, or inflation as a result of demand pressures, remained low at 2%. Malaysia's economic growth strengthened in the second half of 2005 and is expected to gain momentum in 2006. It may exceed last year's targeted 5 percent to 5.5 percent. Despite the small quantity of observation since the end of the Ringgit peg to the US dollar (July 2005 to June 2006), the recorded average inflation, around 3.6%, is to some extent closer to the previous managed float levels than to the exiting regime. Malaysia's consumer price index (CPI) shows inflation hit a nine-month high in November [2007] and looks like it is accelerating. Figures released by the Statistics Department show November's inflation rate jumped to 2.3%, from 1.9% in October. The rise was driven largely by a 3.8% surge in the price of food and soft drinks - the biggest in two years and a direct result of the higher global prices of flour, cereal and dairy products. A Deutsche Bank survey two years ago calculated that the real rate of inflation in the Klang Valley was closer to 8%. Inflation will gain impetus next year because of pending increases in the prices of fuel and public transport. Price rises could also put pressure on the government, which is likely to call a general election next year. Fuel prices will be a particularly tricky problem for the government. They are being reviewed, and while details so far have been sketchy, most analysts reckon fuel could go up by at least 20-30 sen (9-13 Singapore cents). The government has already announced toll rate hikes on six highways ranging from 9-50%. The upshot of all this, according to investment bank CIMB, is an inflation rate of 3.3-3.8% in 2008. 12
  • 13. The CPI basket includes those goods and services which are important in terms of the size of the expenditures made by Malaysian households. It is neither practical, nor necessary, to include all the items that consumers buy since many items show similar price changes. Hence, by selecting representative items (or samples) carefully, it is possible for the index to reflect price changes for a much wider range of goods than just those observed directly. In Malaysia, the present practice is to have CPI reviews every five years or so. Following each review, which involves revising the list of items and revising the weights of the items, the new series are linked to the old to form a continuous series. This linking is carried out in such a way that the resulting continuous series reflect only price changes and not differences in the prices of the old and new basket. According to the Graph 1, Consumer Price Index ( Benchmarked 1980 = 100 ) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, Furniture, furnishing and household equipment and operation, medical care and health expenses. Because of 1980 CPI is 100; therefore we use 1981 to compare with 1985. For 1985, a hike of index 122.1 can be seen on Food as compared to 1981 which bears only 111.5 with the percentage change 9.5%. Where else, for beverages and tobacco there is also a hike from 113.4 in 1980 to 152.5 in 1985 with the percentage 34.4%. A rise of clothes and footwear of 108.3 in 1981 to 120.6 in 1985 with the percentage 11.4%. While for Gross rent, fuel and power the CPI for the year of 1981 is 109.7 is increase to 138.7 in year 1985 with the percentage change 26.4%. Besides that, furniture, furnishing and household equipment and operation also increase from 106.1 in year 1981 to 113.3 in 1985 with the percentage change 6.8%. Finally for the group of medical care and health expenses, there is also a hike between these two years which is 133.2 as compared with 108.6 in year 1981 with the percentage change 22.7%. Consumer Price Index ( Benchmarked 1980 = 100 ) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, Furniture, furnishing and household equipment and operation, medical care and health expenses. In this schedule we will compare for the year of 1985 and 1990. For 1990, a hike of index 136.6 can be seen on Food as compared to 1985 which bears only 122.1 with the percentage change 11.9%. Where else, for beverages and tobacco there is also a hike from 152.5 in 1985 to 176.6 in 1990 with the percentage change 15.8%. A rise of clothes and footwear of 120.6 in 1985 to 128.6 in 1990 with the percentage change 6.6%. While for Gross 13
  • 14. rent, fuel and power the CPI decrease from 138.7 in 1985 to 135.6 in 1990 with the percentage change -2.2%. Besides that, furniture, furnishing and household equipment and operation is increasing with the index of 113.3 in 1985 to 124.2 in 1990 with the percentage change 9.6%. Lastly for the group of medical care and health expenses, there is also a hike between these two years which is 144.3 as compared with 133.2 in year 1985 with the percentage change 8.3%. Consumer Price Index ( Benchmarked 1980 = 100 ) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, Furniture, furnishing and household equipment and operation, medical care and health. In this schedule, we will compare the structure year of 1990 and 1995. For the item of Food, there is an increase which is 136.6 increases to 172.4 in year 1995 with the percentage change 26.2%. While for the items of beverages and tobacco there is a high increase from 176.6 in 1990 to 254.9 in 1995 with the percentage change 44.3%. A rise of clothes and footwear from 128.6 in 1990 to 140.2 in year 1995 with the percentage change 9%. We can also see the rise in Gross rent, fuel and power from 135.6 in 1990 to 158.9 in year 1995 with the percentage change 17.2%. Furniture, furnishing and household equipment and operation Year Total Food Beverages Clothing Gross Furniture, Medical and Tobacco And Rent, Fuel Furnishing, Care And Footwear And Household Health Power Equipment And Express Operation 1980 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1981 109.7 111.5 113.4 108.3 109.7 107.1 108.6 1982 116.0 120.0 120.8 112.7 116.9 109.3 114.5 1983 120.3 120.9 146.0 116.8 124.9 112.2 128.3 1984 124.6 125.1 151.0 119.2 133.3 113.2 130.0 1985 125.1 122.1 152.5 120.6 138.7 113.3 133.2 1986 125.8 122.4 155.0 121.2 140.0 114.0 135.1 1987 126.8 121.8 165.9 121.7 139.0 115.4 136.3 1988 130.0 126.4 168.4 124.3 136.2 118.7 138.3 1989 133.7 131.1 170.7 126.4 135.1 122.0 140.6 1990 137.8 136.6 176.6 128.6 135.6 124.2 144.3 1991 143.8 143.2 190.5 136.5 139.8 129.7 151.9 1992 150.6 152.6 206.9 140.6 144.9 133.2 157.3 1993 155.9 156.0 237.5 141.3 149.9 134.9 165.4 1994 161.7 164.3 249.3 140.2 153.6 137.1 170.9 1995 167.2 172.4 254.9 140.2 158.9 141.0 176.0 14
  • 15. for the year of 1990 is 124.2 increases to 141.0 in the year of 1995 with the percentage change 13.5%. And the last item is medical care and health expenses, the schedule shows increase from year 1990 is 144.3 increases to 176.0 in year 1995 with the percentage change 22%. Below are the schedule and the graph that shows the different. Food Beverage and Tobacco Clothing and Footwear Gross rent, Fuel and Power Furniture, Furnishing, Household Equipment and Operation 280 260 240 220 200 180 160 140 120 100 80 1980 1985 1990 1995 GRAPH 1 According to the Graph 2, Consumer Price Index ( Benchmarked 1994 =100 ) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, Furniture, furnishing and household equipment and operation, Medical care and health expenses. We will now examine the increases or fluctuation of CPI in between the year of 1995 and 2000. CPI for Food in the year of 1995 is 104.9 and rise up to 134.1 in year 2000 with the percentage change 27.8%. In addition, for the item of Beverage and tobacco, it also rises to 122.7 in year 2000 as compared to the year of 1995 with the index 15
  • 16. of 102.3 with the percentage change 19.9%.Besides, for the group of clothing and footwear, the graph shows decreasing which is decrease from index 100.0 to 95.5 with the percentage change -4.5%. Meanwhile, for the group of Gross rent, fuel and power the graph shows increasing from 103.4 to 118.4 with the percentage change 14.5%. For 2000, a hike of index 109.5 can be seen on Furniture, furnishing and house equipment as compared to 1995 which bears only 102.8 with the percentage change 6.5%. While for the CPI of medical care and health expenses shows increasing from 103.1 to 123.6 with the percentage change 19.8% Year Total Food Beverages Clothing Gross Furniture, Medical and And Rent, Furnishing, Care Tobacco Footwea Fuel Household And r And Equipment Health Power And Express Operation 1994 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1995 103.4 104.9 102.3 100.0 103.4 102.8 103.1 1996 107.0 110.9 104.6 99.3 106.7 103.9 106.9 1997 109.9 115.5 106.0 98.8 110.1 104.0 110.7 1998 115.7 125.8 110.6 99.2 114.9 108.1 117.6 1999 118.9 131.6 119.3 97.2 116.7 109.5 121.2 2000 120.7 134.1 122.7 95.5 118.4 109.5 123.6 Consumer Price Index (1994=100) by Main Groups, 1994 – 2000 16
  • 17. Food Beverages and Tobacco Clothing And Footwear Gross Rent, Fuel And Power Furniture, Furnishing, Household Equipment And Operation Medical Care And Health Express 140 130 120 110 100 90 80 1995 1996 1997 1998 1999 2000 GRAPH 2 According to the Graph 3, Consumer Price Index ( Benchmarked 2000 =100 ) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, Furniture, furnishing and household equipment and operation, Medical care and health expenses. Because of year 2000 is used as benchmarked, hereby it is wise to use 2001 to compare with year 2005. All of items shows positive sign which is increasing except for the item Clothing and footwear is decreasing, index for 2001 is 97.4 and decrease to 90.4 in year 2005 with the percentage change -6.9%. For the item of Food, as compare to 2001 CPI for 2005 are 108.8 with the percentage change 8.04%. As for item Beverage and tobacco, it shows increasing from 104.8 for 2001 increase to 132.3 in 2005 with the percentage change 26.2%. Meanwhile for the item of Gross rent, fuel and power, it shows increasing too, from 101.4 to 105.2 in year 2005 with the percentage change 3.7%. An item of furniture, furnishing household equipment and operation shows slightly changes only which is 100.1 to 101.5 in year 2005 with the percentage change 1.4%. Lastly for the items of medical care and health expenses increase from 102.9 to 110.4 with the percentage change 7.3%. 17
  • 18. Consumer Price Index (2000=100) by Main Groups, 2000 – 2005 Year Total Food Beverages Clothing Gross Furniture, Furnishing, Medical and And Rent, Fuel Household Equipment Care Tobacco Footwear And And Operation And Power Health Express 2000 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2001 101.4 100.7 104.8 97.4 101.4 100.1 102.9 2002 103.2 101.4 109.2 95.2 102.1 99.7 105.4 2003 104.4 102.7 111.0 95.3 103.0 99.1 107.2 2004 105.9 105.0 119.7 91.6 104.0 99.5 108.7 2005 109.1 108.8 132.3 90.7 105.2 101.5 110.4 Food Beverages And Tobacco Clothing And Footwear Gross Rent, Fuel And Power Furniture, Furnishing, Household Equipment And Operation Medical Care And Health Express 140 130 120 110 100 90 80 2000 2001 2002 2004 2005 GRAPH 3 18
  • 19. According to the Graph 4, Consumer Price Index (Benchmarked 2005 =100) for Malaysia, Consumer Price Index for Food, Beverages and tobacco, Clothing and footwear, Gross rent, fuel and power, furniture, furnishing household equipment and operation and medical care and health express. Because of year 2005 is used as benchmarked. Hereby it is wise to use 2006 to compare with year 2008. For 2008, a hike of 113.0 can be seen on Food as compared to 2006 which bears only 103.4 with the percentage change 9.28%. As for beverages and tobacco, the CPI also increases from 106.9 to 120.3 in year of 2008 with the percentage change 12.5%. While for the item of clothing and footwear, there is only a slight decrease which is 98.7 in 2006 and decrease to 97.0 in 2008 with the percentage change -1.7%. Furthermore, item of Gross rent, fuel and power increasing from 101.5 in 2006 to 104 in 2008 with the percentage change 2.5%.While for furniture, furnishing, household equipment and operation also shows increase from 101.1 in 2006 to 104.0 in 2008 with the percentage change 2.9%. Lastly, for item for medical care and health express also show increasing from 102.1 in 2006 to 105.4 in 2008 with the percentage change 3.2%. Year Total Food Beverages Clothing Gross Furniture, Medical and And Rent, Fuel Furnishing, Care And Tobacco Footwear And Household Health Power Equipment Express And Operation 2005 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2006 103.6 103.4 106.9 98.7 101.5 101.1 102.1 2007 105.7 106.5 115.2 97.3 102.8 102.2 103.7 2008 109.8 113.0 120.3 97.0 104.0 104.0 105.4 19
  • 20. Food Beverages and Tobacco Clothing And Footwear Gross Rent, Fuel And Power Furniture, Furnishing, Household Equipment And Operation Medical Care And Health Express 130 120 110 100 90 2005 2006 2007 2008 GRAPH 4 20
  • 21. REFERENCE: 1. http://www.bls.gov/cpi/cpifaq.htm#Question_1 2. http://www.investorguide.com/igu-article-286-basic-economic-concepts-introduction-to- inflation-and-its-impact.html 3. http://investment-db.com/xp/modules/AMS/print.php?storyid=12 4. http://abacus.bates.edu/~drieracr/Inflation%20In%20Malaysia.pdf 5. http://www3.pmo.gov.my/rancanganweb/rancangan1.nsf/204bc7e9a2900db048256732002 3d341/59db360cd600eac64825674b003417e5?OpenDocument 6. http://ww2.publicbank.com.my/cnt_review35.html 7. http://www.investpenang.gov.my/new_main.php? news_id=466&start=90&category_id=&parent_id=&arcyear=&arcmonth= 8. http://www.wto.org/english/tratop_e/tpr_e/tp180_e.htm 9. http://www-personal.umich.edu/~kathrynd/Malaysia2.w02project.pdf 10. http://www.bnm.gov.my/view.php?dbIndex=0&website_id=1&id=683 11. http://www.bnm.gov.my/index.php?ch=109&pg=294&mth=12&yr=2008 12. http://www.indexmundi.com/malaysia/inflation_rate_(consumer_prices).html 13. http://www.epu.jpm.my/new%20folder/ses/10.html 21