Inflation Malaysia is up because of fuel and raw food materials.

Inflation Malaysia is up because of fuel and raw food materials.

According to Reserve Bank of Australia, “Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Typically, prices rise over time, but prices can also fall (a situation called deflation).” Read here.

Briefly, the higher the inflation number is, the lower our purchasing power is unless we earn a higher income to compensate for this rise. This is also the reason why we need higher salaries every year. Else, our livelihood may become worse every year.

Malaysia’s inflation a.k.a consumer price index is up 3.3% in November. Briefly, it has always been close to zero because of the pressure from the covid-19 lockdowns which reduced the demand for goods and services. Now that lockdowns are lifted, it does seem the prices are inching upwards. Let’s look at more details as per Malaysia’s Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin.

Article in themalaysianreserve.com Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said the main contributor to the rise in CPI was mainly due to the hike in prices for raw food materials.

He shared that prices for chicken has risen by 16.7% due to increase in feed prices from imported sources. This is the largest component for meat items and the main choice of protein for Malaysians.

He said, “Besides that, fuel prices remain high at 27.6% and electricity cost rose 34.6% after rebate on electricity bills ended in September.”

Not all items saw price increase. Communication services, education fees and toll payments remained the same while price of clothes and vitamins decreased.

He also shared that the rise in inflation is unavoidable and even the US recorded an inflation of 6.8% which is highest since June 1982. He added, “Inflation is expected to increase as a result of global fuel and food prices as well as construction related materials such as metal.” Please do read the full article here with more details: Article in themalaysianreserve.com

Global fuel prices and construction related materials such as metal

For the construction industry, when the prices of fuel and construction materials move upwards, it will also lead to higher cost of construction. When this happens in the real estate industry, the property developer can choose to do a few things. One is to cut the quality of materials which they are using. This is very bad and hopefully they will avoid doing this.

Second is to reduce the profit margins and keeping the prices they offer to the property buyers. By the way, this is not easy to do or even an attractive option because when profit margin is too low, there is no point in becoming a property developer.

The third and the usual way to approach would be to increase the prices for existing developments. If most other developers also take the same approach, then they will not affected negatively. If the project is still in planning stage, then it’s also possible to change the type and size of properties to mange the property prices too.

For example, they may keep to the entry price of RM500,000 but size may be changed. Instead of a 20 x 75 sq ft double storey landed, it may now become 18 x 65 sq ft. For high-rise, the unit size may also become smaller too so that more units could be built to average down the prices.

Conclusion

What’s important to note that when inflation is up, it will most likely affect the property prices too. The only question is when and by how much. Happy understanding.

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