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Saturday, April 18, 2009

Inflation – figures that go up and up

The prices of basic necessities such as food, clothes, housing and cars are dramatically higher now compared with those of 50 years ago. Of course, Malaysia today is a lot different than what it was in 1957. Back then, it had 6.28 million people. Today, the population is 27.7 million and our lifestyle has vastly improved.

With the strong economic growth since independence, comes the increase in the prices of goods and services.

Based on rough calculations, the prices of food, houses, cars and apparel have seen a compounded annual growth rate of between 3.7% and 9.02% over the past 50 years.

For instance, a Damansara Heights bungalow with 7,000 sq ft built-up area cost about RM40,000 in the 1960s. It has since appreciated to above RM3mil, given that the location is a prime area in Kuala Lumpur.

A popular vehicle in the 1960s, such as the 1.2 litre Datsun 1200, was priced at about RM7,000. Now, the 1.3 litre Perodua Myvi standard model costs RM43,000. It must be noted though that until the 1990s, cars had not come with fancy features such as high-tech fuel injection systems, power steering and windows, airbags and central locking.

In the 1960s, people paid 15 sen for a cup of coffee at a restaurant or coffee shop. Today, they have to fork out RM1.20 to RM1.50. That is a compounded annual growth rate of 4.71%.

Arrow, an American brand of men’s shirts was sold for about RM10 in the 1960s. The price was gradually increased to RM15 in the 1970s, RM20 in the 1980s and RM40 in the 90s. Now the shirt costs you about RM90 a piece.

Do Malaysians’ salary increases match the rising prices?

In the 1960s, civil servants earned about RM100 to RM150 a month. Today, their basic salary has reached about RM2,000. That reflects a compounded growth rate of 6.17% over 50 years.

However, with the continued rising prices, a father of two who earns a net monthly income of RM3,000 in Malaysia, especially in the Klang Valley, may struggle to stay afloat. After deducting for his EPF contribution, income tax, house and car repayments, and other expenses (meals, petrol, utility and phone bills, daily necessities), he will have little left for savings, if at all.

So, while the uptrend in prices is generally seen as a sign that the country is developing fast and that its people enjoy a higher living standard, can Malaysians cope with the high prices of the necessities, especially during a financial crisis?

According to a property agent contacted by StarBizWeek, the average salary is actually very far off the affordability mark for house prices, especially in the strategic locations in Klang Valley. “It is a big gap and it is rather difficult for people to catch up with the rising prices,” he says.

By The Star (by Rachael Kam)

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