Harder times ahead

Oil prices have gone up to almost US$90/= per barrel. Wheat price has gone up almost 80% .As with other times, fear of inflation has caused gold prices to shoot up too.

There is a very good write up In Malaysiakini  “Brace yourself”which forecasts that after March 2008, inflation will rear its ugly head in Malaysia.

I agree with the writer, MOAZ YUSUF AHMAD, that harder times is ahead.

As I see it, next year we will probably have an increase in pump petrol prices, and electricity rate will also go up; it is inevitable and we cannot expect the government will keep on subsidising for petrol. If petrol and electricity rate go up, everything in the market will go up! except maybe the wages in the urban areas. The increase in wheat prices will affect prices of noodles and bread, and you can expect hawkers to raise their prices, not to mention the coffee shop owners who will raise the price of every cup of coffee sold, at every opportunity they can get.

The rural areas will do relatively well because of the high palm oil prices. It is the city folks like you and me that will be hard hit.

The economy is not doing particularly well, apart from good prices for petroleum and palm oil. The GDP will probably grow about 5.6% this year. Next year, it will be around 5%-5.4%, slower because of the global conditions..

The official inflation rate is 2% at the moment, but this include a lot of basic foodstuff that is under price control and thus is not a good indicator for real inflation.

Most people will agree that real inflation is higher, probably around4%, which means that the money you put in bank is actually shrinking. And real growth after deducting inflation is a mere 1.6% this year.

For next year, real inflation will be much higher and if it touches 5% and above, real growth will be zero if our growth rate next year is around 5%. Real growth may even go into negative territory.

This means that while we are spending more on stuff, we cannot expect any increase in our disposable income, which would most probably be shrinking.

What this means in political terms is that BN will have to call an election before next March. It can even be as early as this year end. Or it can be after the Chinese New Year.

We need to conserve energy. Use alternative energy for generating electricity. Petroleum prices will only go up since it is a diminishing commodity. Any expectation that it will go down to the levels of the 80s is not realistic.

We need to improve public transport. What have we done to improve it? I don’t see much improvement, if any.

The government as well as the people must be more stringent in spending; there is a real need to cut down wastage and corruption, improve efficiency and productivity.

We need to have a better growth rate so that our income growth will be faster than the rise in inflation.  To do so we need to really buck up and adopt a more open economic policy, do away with restrictive policies like the NEP, and attract new investments , create more knowledge-based jobs which will provide higher wages.

Otherwise, we will have to brace ourselves for a harder time ahead!