Thursday, December 31, 2009

The danger of inflation and stagflation

Today I went to buy a can drink of sugarcane from my hospital's HospiMart. One can used to be RM1.50 but just today on 31st December 2009, it costs RM1.60.

Yes, a rise in just 10 cents. Although this amount may look tiny, it has bizarre implications. Imagine if we use ratio to compare. What used to cost RM15 will cost 6.67% more, which is RM16 and subsequently what used to be RM150 will cost RM160 and so on..

What does this mean?

While the price of an item which is cheap may seem insignificant, but the price of a more expensive item will see inflation. This indirectly affects the middle income class and if I may be bolder, it affects the upper class as well.

Why do I say that?

The rich has already reduce and minimize a lot of their spending. The De Beers mine in South Africa is already closed. This simply means the rich are not interested to shop anymore. When they don't shop, money doesn't get pumped into the economy circle. No money, no returns. No returns, no profits. This affects our predominantly worldwide capitalist system. This is not good.

The government must find ways to boost local income and local economy-cum-industries. Failing that, the people will be angry with their deteriorating livelihood. I suggest the government adopt the 1997-8 crisis policy measures and re-introduce MTEN (Majlis Tindakan Ekonomi Negara) or NEAC (National Economic Action Council) to safeguard our nation's interests in these trying times. I strongly urge the government to heed the advice of Mr Matthias Chang, former political secretary to former Prime Minister Tun Dr Mahathir Mohamad.

It would be great if Matthias is wrong. I too would be happy. But what happens if he is right?

Dr Melvin Chin.