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The current inflation situation in Malaysia

Inflation is the controversy concern in world economical development. It causes numerous others problem to the united states all to the planet. It because the inflation itself isn't only burden compared to that country, but it addittionally spread the result to the related country that has connection with them. Not a unitary country can stay away from the inflation can happen. It always happens however the increasing of inflation can cause others problem worsens.

It is the occurrence that has top features of globally. It afflicted that not conclude only to certain country. It always happens to many country on the planet. Inflation also pass on from the coordinator to others, begin from the primary country such as USA if they experience the inflation, then other country also experience it in the many degree of periods.

When the inflation happens, it involved each part of the community. House hold, workers, investor, and even pensioner influenced by the inflation. But the result is also various, certain people get the power from it and the others get the losses. It depend on how the money use to us, either it been use to pay debt or to pay goods we buy.

Recently, the earth has go through the inflation once more that affected most of the country on the planet. It caused by the increasing in cost of world crude petrol as a primary reason. In Malaysia for example, the inflation rate has reach up to 8. 5 percent on July 2008. The inflation in Malaysia also happens due to the increase of the federal government servant salary that increases the power purchase of the most population in the united states.

When aggregate demand increase, many retailers and firms take advantages by increase price to gain more profit. The increment is roping in one good to some other that suddenly cause the cutting down value of money itself.

Compare to the previous years, the July 8. 5 % rate is the best in 26 years. Higher rate of inflation has taken the country to many problems such as lost investment, economic recession, slow down economic growth and most important is falling the worthiness of ringgit.

Based on the serious increment, the federal government has come out with several device and measurement to face the inflation. The inflation tool such as financial policies, fiscal insurance policies and also the physical control is the application use to regulate the inflation that occurs. All the device use also offers negative result if it been trying to get a long term.


The term Inflation can be define as the increase average price of good sustain for a period, in easier phrase, the increase price of good. The purchase price will sustain increasing for a period of time. It is different from the increasing of good many times in several month or once in the several month either also the sometimes in a calendar year. For example the increase price of good when yuletide season can be called as inflation since it only happen double a year and not sustain.

The overall increment of price happen when just as average the purchase price in the economy increase. So, during inflation occur, there is a price that increase high, gradually and also doesnt change whatsoever. Moreover, there is good that reduce the price. The measurement in the inflation is dependant on the sustain rises in average price of total good. If the common price of total good cut down, it is not called as inflation, but its known as deflation.

The inflation is solution on the percentage rate. But the normal rate of the inflation is different from various countries. In Malaysia, the standard rate of inflation is below 5% per time or per count up. Before 1960, normal rate of Malaysia inflation is 2 % annually. After the big influx of inflation that happen on 19970 to 19974, the speed has increase to 5% annually as normal rate, because in that period, 10 % of inflation is a normally rated by many country on the planet. The main cause of the occurred inflation is basically because the increasing of crude olive oil by the OPEC by 400 percent, known as the demand impact.

The major reason of inflation take place in Malaysia

The cause of the inflation is due to several current factors happen to the world. In addition, it been triggering by the internal factor that help worsens the situation. The first factor is because the increase of crude engine oil price. It infect country gas price to increase too because government cannot stand the subsidies increase. Current price of crude petrol has increase to USD 150 a barrel, that cause Malaysia to face 7. 7 percent inflation on June and increase again on July to 8. 5 percent. The increment of the natural source price has boost the price of local gas to rm 2. 7 per liter than before from rm 1. 92. Its been followed by the increase of the local goods such as baking petrol, flour, and rice and other in that year. The local investor has taking the advantages to raise the prices of good because of the reason of olive oil price increase.

The value of ringgit has ignore and bringing down its value due to local traders take action. By raise the price of good, the worthiness that previously can purchase good in certain quantity, has goes down that only by the same good however in the less variety than before.

For example, the price of 1 kg of grain in 2006 is rm 2. 00. Say the price tag on the same good has increase to rm 2. 50 on January 2007. it imply that the price tag on the same good has increase twenty five percent than the previous year. The act of the neighborhood investor has reduced the worthiness of the rm by 25 percent than the prior season. So, the inflation has decrease the purchasing capacity to the households.

It also induced by surprise demand scheduled to economist speculation. The news headlines of future price would increase tend to make visitors to buy good in variety which makes certain good eliminated from the demand than usually. To lessen the demand, local retail cover the stock and improve the price of good that make the inflation rate increase.

The inflation in Malaysia also occurs because of the increment of salary and income and also new COLA announcement by the federal government. The pronounced not only enjoying general population servant but also the local trader too. After having a few day of the announcement, various type of necessary good increase. It is done by the local shop and shop owner to gain profit from the problem. The inappropriate work by the neighborhood trader provides kick begin to Malaysia inflation to expand. Later, the government has turn out with many type of control to diminish the price tag on good however the trader has worsen it better by concealing the nice to raise the price back.

From That reasons above, evidently we can see the main reason behind Malaysia inflation is done by the interior problem itself. The function of local retail and dealers is the biggest contributor to the inflation. Although many people can easily see the general aftereffect of the increase of crude engine oil creating the inflation rate increase, however the authorities has absorb the responsibility giving the subsidies to numerous necessary good to reduce the price. It can't be the best reason to local investor to increase price of good on the market that tend to increase the inflation.

Government action to face the inflation

Government applies the many ways of face the inflation that barge in Malaysia recently. Bank or investment company Negara Malaysia as a central bank act as authorities agent regulates the economical by employing several procedures to the commercial loan provider and the finance institutions. In addition they give many guidelines to public on how to help government to control the inflation.

Monetary policies

There are 3 measurement use by BNM to regulate the inflation in the first way the BNM use to control the inflation is to apply the monetary plan. Monetary guidelines is a policy use to control to money source for retaining the steadiness the on the market. Instruments use in monetary insurance policies such as open market procedure, statutory reserve necessity, discount rate and also moral suasion.

First is open up market operation. Open up market operation is the instrument that act to lessen or adding commercial bank or investment company money supply by retailing or buying securities. The BNM can induce commercial standard bank and financial institution to choose the securities that can reduce their money resource and then decrease the capacity to give loan. Reducing loan providing means reduce the flowing of money in the marketplace.

Next is the utilization of statutory reserve proportion. It's the instruments that boost the reserve of the commercial bank or investment company. BNM control the inflation by raise the reserve ratio to reduce the ability to give credit to customer. In so doing, it also decrease the money supply on the market and tend to decrease the purchasing electric power of the costumers.

Next is the using the discount rate. Bnm will impact the discount rate on lending options and interest fee on the reserve to commercial bank or investment company. In case the inflation goes up, BNM will boost the discount rate demand to discourage the bankers from making loan and borrowing reserve and then decrease the flow of profit the country.

Moral suasion is the involvement of BNM in loan company guidelines and activities. They tend to give order and route on how to control the inflation to the commercial and financial institution

Fiscal Policies

This policy handled government expenses and taxes. When the inflation occurs, authorities will use surplus budget regulations by boost the fees and reduce authorities spending. This execution will lead to lower income to public and decrease the purchasing power. Authorities has introduce the prudent spending program due to this inflation time by minimizing the cost of operation of government and lead the federal government to spend more wisely. Authorities also offers stop the on going development that increase spending to reduce the outflow of ringgit to the marketplace.

Direct or physical control

Government has implements immediate or physical control to face the inflation. The first physical control use is anti hoarding campaign. KDPNHEP has pressured out their officer to do this for those dealer and investor that hoarding the products on inflation, those who covering goods will be chemical substance and goods will be snatch. For instance when the deficiency of cooking essential oil, KDPNHEP has working out to check from premise to premise to avoid the trader from hoarding the stock. The goal of stock hoarding is to rising price of the goods. From the marketing campaign, government has released the new price of baking oil to avoid the increment of the purchase price.


Government has turn out with many measurements to fight back the inflation that take place our country. A few of them appears done plus some else dont make any reaction. Including the increasing rate of bank interest giving desire to reduce loan from customer but the habit of some merchants that hoarding the stock, worsens the situation.

To face the situation in more efficient way, authorities should make an adjustment on its insurance plan to handle inflation. Administration should begin to encourage open public to buy local good and also makes good to buy. Mean that, people should commence to join in agriculture that can produce necessary good that can be devote market. Making our own food can decrease the depended on import on food. It reduces the money supply. Moreover, local goods are cheaper than brought in product.

Local traders also need to be more competitive. They cannot simply improve the price to gain more profit nevertheless they need to find new way to resolve their problem. The Malaysia is not done by the increase of oil price however the frame of mind of the stock traders itself. Self consciousness is the main thing to be developed in our society today to prevent this action to be inherited to next generation that can make 1998 situation happens again.

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