Malaysia Inflation Rate Rise to 5% on 2015

Malaysia Inflation Rate Rise to 5% on 2015 According to the Ministry of Finance, prebudget Economic Report, the rise of Malaysia inflation rate above 4% for the first
time in five years is due to the onset of GST that begin on April next year
The implementation of GST and effect of fuel subsidy reduction make the Malaysia
inflation rate increase 4% to 5% in 2015. According to the information available, the
latest Malaysia inflation rate stood at 3.3% in August. The subsidy cut that drove up
the price of fuel, electricity and sugar makes monthly Malaysia inflation rate have
stayed above 3% since December.

Domestic Cost Factor Causes The Higher Malaysia Inflation Rate

The higher Malaysia inflation rate in 2015 is due to domestic cost factors according
to the Economic Report. It is assuming to be subdued for the external or imported
cost pressure. It expected to include measures to lessen the sting of high inflation
according to the Prime Minister Najib Tun Razak speech. The replacement of sales
and service taxes with GST drive the savings from a lower subsidy bill and at least
RM2.5billion in additional income. While continuing to narrow the budget deficit to
3%, it may give the opportunity to Najibs administration to introduce people-centric
measures.
A slew of highway and urban rail projects in his budget speech are the expectation
to Najib announcement. Besides, the increase direct payments to low-income
households under BR1M also his earlier promise. The operating expenditure will
remain stable instead of the government development expenditure will grow about
15% as according to forecast figures in the economic report which is not entirely
representative of budget-specific measures. The economic growth drives to privateled

Malaysia Inflation Rate ; Most of The Growth Will Be Private-Led

With Government Instead of It Will Be Recorded
In 2015, the GDP growth is between 5.5% and 6%. It is as predicting by the Ministry
of Finance in the Economic Report state that the Malaysian economy will remain on
steady growth trajectory. To strengthen the private sectors role in the economy,
most of the growth will be private-led together with the government. Along with the
services and manufacturing sectors remaining the major contributors to growth, the
recording of growth expected by all economic sectors in 2015. According to the
Economic Report, the unemployment Malaysia inflation rate forecasted to remain
stable at 3%.

1. Define inflation and how to calculate inflation rate?

Answer:
Inflation is a general upward movement of prices in a situation where there is a
persistent and rapid increase in the general price level (consumer price index). In
other words, inflation means that goods and services. Inflation is measured using
Consumer Price Index (CPI).
Inflation rate can be calculated by using this formula:
Inflation rate = CPI Yr1 CPI Yr0 x 100
CPI Yr0

2. Briefly explain two types of inflation.

Answer:
There are two types of inflation which is demand pull-inflation and cost push
inflation. Demand Pull Inflation refers to an increase in general price level due to an
excess aggregate demand over aggregate supply at or near the full employment
level of output.
Illustration: Demand-Pull Inflation

Original equilibrium is at point A, where the general price level is stable at P1. An
increase in aggregate demand from AD1 to AD2 pushes the general price level to P5
in short run. In the long-run, this high price will encourage producers to increase
output to Y2. As aggregate supply increases, the general price level rises only
slightly from P1 to P2. This slight or temporary increase in the general price level,
called mild inflation. Real demand-pull inflation occurs only, if the aggregate
demand increases to AD4. Here, since the economic resources are fully employed,
aggregate supply cannot increase anymore. Therefore, the general price level will
increase from P3 to P4 leading to demand-pull inflation. It will remain there unless
the government takes anti-inflationary measures to control it.
Illustration: Cost-Push Inflation
Refers that inflation caused by continuous decrease in aggregate supply.

Cost-Push Inflation refers that original equilibrium occurs at point A, which

corresponds to a price level P1 and output level Y1. An increase in the production
cost reduces the aggregate supply, from AS1 to AS2. So, general price level
increases to P2 causing a cost-push inflation.

3. Based on the article, identify and explain graphically the type of

inflation that has occurred.
Answer:

The type of inflation has occurred is Cost Push inflation

Original equilibrium occurs at point A, which corresponds to a price level P 1 and

output level YF.
An increase in the production cost reduces the aggregate supply, from AS 1 to AS2.
As a result, the general price level increases to P 2 causing a cost-push inflation. This
inflation will remain forever, unless the government undertakes anti-inflationary
measures to increase the aggregate supply.

4. Based on the article above, state the factor that cause higher inflation
rate in Malaysia.

Answer:

Based on the article, the factor the cause higher inflation rate in Malaysia is
domestic cost factor. It is assuming to be subdued for the external or imported
cost pressure. It expected to include measures to lessen the sting of high inflation.

5. Explain two direct measures that can be used to control inflation.

Answer:

Direct measures that can be used to control inflation is controlling process of

selected items. Government will enact a maximum price legislation to limit price
increases on certain items such as chicken and meat. Next, increasing the
aggregate supply by improving the productivity of workers giving subsidies and so
on. These measures called supply side economy.