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Posted by Penarik Beca Thursday, May 15, 2008

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Call to redefine poverty
The Star (14/5/08): The Economic Planning Unit (EPU) must revise the guidelines defining poverty and hardcore poverty to better reflect current realities, said a first-term backbencher.

Chua Tee Yong (BN – Labis) said the guidelines in 2004 defined a four-member household earning less than RM800 monthly as “poor” and those earning less than RM400 monthly as “hardcore poor”.

“The guidelines are unreasonable, particularly when the inflation rate is about 5% each year and living costs are rising.

“I am sure there are some parents who are forgoing meals so that their children can eat.

“I urge the EPU to revise the guidelines so that food aid schemes can be better channelled to deserving recipients,” he said when debating the motion of thanks on the royal address.

The guidelines defining poverty and hardcore poverty, added Chua, should be linked to the Consumer Price Index for the Government’s assistance to have an impact on the affected households.

Chua also called on the Government to set a quota on the number of foreign workers that a palm oil company could hire to work in their estates.

“This is because many companies are now replacing their local workers with foreigners to save costs. They are also hiring more temporary workers who receive no benefits.

“Such practice has affected the earnings of our local workers in estates, so much so that housing and healthcare facilities have not been upgraded for the last 30 years,” he said.
Time to re-look CPI, subsidy structure, say economists
The Edge Daily (5/5/08): Burgeoning fuel and food prices could cause domestic inflation to rise well above the 3% forecast for this year, signs that it may be time to revise the consumer price index and subsidies structures.

Analysts contacted by The Edge Financial Daily said with current fuel and food prices, inflation could range between 3% and 3.5% by year-end. However the inflation rate also hinges on the proposed revised fuel subsidy and its impact on petrol prices.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng, who estimated that inflation could range 3% and 3.5% by year-end at current prices, also said that a 25% increase in fuel prices at the pump could lead to as high as a 4% inflation rate.

Kuwait Finance House (Malaysia) Bhd (KFH) said in a research report last week that inflation could potentially reach 3.5% as inflationary pressure in the domestic economy builds up. “Rising global food and commodity prices, impending review of administered prices such as toll rates, public transportation fares and take-off of construction activities will put pressure on material prices moving forward,” it said.

“The Malaysian government, which spends more than RM30 billion per year on fuel and gas subsidies, is under pressure from rising global oil price. Persistently high oil price may lead to higher domestic fuel price this year in an attempt to reduce government fuel subsidies,” KFH said in the report.

Ballooning food prices also threatened consumer spending power. While food prices rose 2.8% year-on-year in March, economists say the actual CPI could be much higher due to the way the CPI basket is structured.

The government has caps on essential goods such as rice, flour, sugar, bread, chicken and cooking oil, which is capping inflationary pressures, economists said.

“Most of the food items in the basket are controlled and without the subsidised fuel, inflation could be much higher. We estimate that one-fifth of the CPI basket comprises controlled items,” said Saifuddin Morat, an economist with Aseambankers Malaysia Bhd. “They (the government) can either change the CPI basket or maintain it and produce another index, such as a food index to reflect actual spending,” he added.

Singapore last month announced a 6.7% annual inflation as of March, its highest in 26 years. Indonesia, meanwhile, reported a year-on-year inflation of 8.96% in April.

Manokaran Mottain, an economist with AmInvestment Bank said rising food prices would eventually lead to the government having to lift ceiling prices, such as for cooking oil.

“The last time the CPI basket was revised was in 2005. We suggest the government re-look the basket and also come up with a rural and urban CPI,” he added.

While the government has promised RM40 billion in subsidies to the public this year, rising food, energy and food costs and the need to spur economic growth are already putting pressure on subsidies.
Economic downturn: pray for soft landing (Malaysiakini 11/4/08)

RISING FOOD PRICES: We're feeling the pinch, more or less
insidepix1

NST (3/3/08): Lately, Malaysian consumers have had to curb their spending habits due to
the rising cost of living. Statistics show that the prices of essential goods and services have been steadily going up in the last two years. SONIA RAMACHANDRAN and AUDREY VIJAINDREN learn what the elusive CPI actually means

Dr Sothi Rachagan says the CPI is important because it is the price the consumer pays
Dr Sothi Rachagan says the CPI is important because it is the price the consumer pays

Kamarudin Muhamed says the CPI is pegged to a basket of 460 goods and services
Kamarudin Muhamed says the CPI is pegged to a basket of 460 goods and services

Datuk Marimuthu Nadason wants the items in the CPI basket to be reviewed
Datuk Marimuthu Nadason wants the items in the CPI basket to be reviewed

A WHOPPING 11 per cent. That's how much the Consumer Price Index (CPI) for food and non-alcoholic beverages has increased since 2005.

In layman's lingo, it means the cost of living has gone up. And ouch, it's squeeze on your wallet.

Since 2005, wheat flour, for example, has increased by 55 per cent and rice by 4.3 per cent.

International Association for Consumer Law deputy president Datuk Dr Sothi Rachagan said it was important to understand that the CPI was based on a "market basket" and pricing procedures on the experience of the relevant average household.
"It reflects that for the average household, food and non-alcoholic beverages had gone up by 11 per cent compared with 2005," said Sothi.

"The CPI is an index, but it is an index of prices."

He added that the CPI is important because it is the price the consumer pays and not what the producers pay.

Sothi said its major uses include being economic indicators, a means of adjusting currency values, and assisting in the use of other economic data.

" It is not a cost of living data as not all cost of living factors are taken into account but it takes into account a substantial portion of the cost of living."

From February 2007 to February 2008, the index for food and non-alcoholic beverages had gone up by 4.5 per cent.

According to the Department of Statistics, the increase in index for the same category between 2000 and 2005 was only nine per cent.

Kamarudin Muhamed, its senior director for prices, income and expenditure division, said a consumer spent about 31.4 per cent of his salary on food and non-alcoholic beverages in 2005 compared to 34.9 per cent in 2000.

"As one's income increases, the percentage spent on food and non-alcoholic beverages is lower and the extra portion is spent on other areas like transport, communication, restaurants and hotels."

How did they come to that conclusion?

"Every five years, we conduct a Household Expenditure Survey (HES) to know what Malaysians are spending on," explained Kamarudin. "The weights used in the calculation of the CPI are obtained from the HES."

CPI is the measure of rate of price change for goods and services bought by consumers. The weights used in the calculation of the CPI are the amount of expenditure incurred by a household for this category.

"The CPI is important because it is a proxy to inflation and is an indicator of price changes in the economy. It also monitors and controls prices of goods and services and is connected to salary adjustment.

"Prices are important because it determines the welfare of the people and if prices are high, purchasing power is lower."

Kamarudin added the CPI is pegged to a basket of 460 goods and services. The items in the basket are revised every five years.

There are 12 categories of items in the basket based on the United Nations' "Classification of Individual Consumption According to Purpose (COICOP)".

Kamarudin said the index for milk, cheese and eggs increased the most in February 2008 (12.1 per cent) as compared to other food items for the same month in 2007.

This was followed by coffee, tea, cocoa and non-alcoholic beverages (5.8 per cent) while rice, bread and other cereals saw an increase of 5.7 per cent.

The index for fish and other seafood saw a drastic increase of 16.8 per cent in February 2008 as compared to the base year 2005.

"In October 2007, prices started to increase for food. This was due to the rise in world food prices.

"Weather calamities in food producing countries were the main contributing factor," said Kamarudin.

Prime Minister Datuk Seri Abdullah Ahmad Badawi recently said that with the new cabinet in place, his priority was to support lower income groups who are suffering from surging prices of consumer goods.

The Federation of Malaysian Consumers Associations (Fomca) suggests that it is time to review the items in the CPI basket.

Its president Datuk Marimuthu Nadason said items in the basket that are obsolete, unnecessary and carry virtually zero weight should be critically reviewed for omission.

Is the basket filled with virtually weightless objects?

"Even though the weight for some items are 0.0 per cent, it does not mean they are irrelevant. It just indicates that consumption of those items is smaller compared to other items. It could be a weight of 0.001 per cent," said Kamarudin.

"And the items in the basket are in accordance with the list we receive from the United Nations."

But Fomca said items carrying virtually zero weight should be critically reviewed for omission to make way for new items that will better reflect the expenditure pattern of modern day consumers.

As the population demographics has evolved to the point that we now have a thick layer of middle-income earners, Fomca suggests that the CPI to be broken into two population groups to better reflect the composition of modern day society.

The first population group, Marimuthu said, should consist of lower income earners with low consumption expenditure such as rural households and the urban poor.

While the other group, he added, will consist of middle and higher income urbanites with higher consumption expenditure to better represent the national index for population.

"We have the index for the lower-income category as well as the urban and rural categories but that information is only for our stakeholders," said Kamarudin.

Marimuthu also said the base year for CPI reviews should be extended from five to 10 years or more to better reflect the actual inflation rate of the country to consumers.

However, Kamarudin said the general recommendation by the United Nations is to review the basket every five years.

"This is the standard practice everywhere," he said.

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