Inflation rate: The numbers just simply do not add up!

Now maybe our politicians can see clearly, with some help from Dr Ismail, that there will always be someone to tell them that they cannot fool some of the commoners all the time. The education the public received has now come to prove that we need more educated, talented, clean people to replace the present government.

Inflation rate: The numbers just simply do not add up!
8 June, 2008

Does the inflation rate in Malaysia reflect the situation on the ground? Senator Prof Datuk Dr Ismail Md Salleh is convinced it does not while the Department of Statistics' Kamarudin Muhamed stands by his figures. Who is right? SONIA RAMACHANDRAN and AUDREY VIJAINDREN listen to both sides of the story

WITH a bachelor's degree in economics and political science from New York University in 1973, and a master's in economics from Illinois University a year later, Ismail's accomplishments are no mean feats. More so since the senator is visually impaired.

Q: Why do you say the calculation of the inflation rate is wrong?
A: When you talk to many housewives, who are the ones responsible for the household budget and who go to the market, they will tell you that the increase in prices has gone way beyond what the government claims to be the rate of inflation.
Similarly, when you talk to those who buy durable goods like washing machines and other electronic goods, they too are facing the same situation.
Prices are no longer the same as in the past. This is due to the input going into the cost of production like transportation, oil and electricity tariffs, which have all increased.
You also see increases in medical services and also in education.
How can all this not be reflected properly?
Last year's rate of inflation increased by two per cent over that of 2006. This was such a small increase. But in the market, the prices of chicken, rice, cooking oil and flour are all soaring.
Therefore, there must be something wrong in the calculation of inflation.

Q: Why do you think this is so?
A: Some say one explanation is that some of the items within the basket of commodities remain stable because of price controls. So what rises is the price of only some of the items and thus, when the average is taken, the figure is low. But I think that explanation is incorrect.

Q: How so?
A: There are two reasons for this incorrect calculation of inflation. One is that the weight given to items in the composition of the basket no longer reflects the true household expenditure of that product.
For example, let's say the overall weight for food is 50 per cent, but in the composition of the basket, the weight allocated for food may only be about 30 per cent.
The second reason is that the quality of the products in the basket may no longer be the same.
For instance, you may have been taking the price of fish and all this while it may have been that of the kembong fish. But as the quality of life increases, so does people's taste, and they may go for a costlier variety of fish.
That could be another reason why it does not possibly reflect the inflation rate.

Q: What do you suggest be done to rectify the situation?
A: The Statistics Department should conduct a thorough study of this again, especially the weights and quality of goods in the basket.
This study is important so that people will not have a cynical view of the inflation rates released by the government.
Singapore's inflation rate is 6.7 per cent. Thailand's is 5.3 per cent. How come Malaysia's is only two per cent?
The inflation rate in all the countries is increasing and it's as though Malaysia is isolated from everything.

Q: Why is a correct inflation rate important?
A: A true picture of the inflation rate is very important because you use the inflation rate to measure the persistent increase in price levels.
If there is a persistent increase, it will tell us whether or not our standard of living is being undermined by the rate of inflation. If the inflation rate is not correct, the growth rate figures released by the government will also be incorrect.