Why there is inflation in this country?
Is this good or bad?
Generally this is good thing. As the economic of the world growing, the price of all goods in the market increase. Therefore, we need inflation in our own country to cope with the increasing price of the goods in the world market.
Every year, Bank Negara aim for inflation of 5%. They control the inflation by changing the interest rate. Our country is doing great every year as the inflation rate always stay around 5%.
CPI (Consumer Price Index) is a measurement of the price good in the local market. CPI will measure the genereal increase or decrease of price of the market. This index will be use as guideline for salary increase so we can buy the same amount of the good as last year
However, our Malaysian boss all - to some extent have no economic knowledge. They do not increase the salary with the CPI. Perhaps, when there is inflation, some boss even cut the salary. It just doesn't make sense.
The petrol price has increase by 40%. Will our inflation rate go up by 40%? The answer is no! There are many goods in the market (eg foods, clothing, entertaiment) This is all part of the calculation of CPI and the inflation rate. The input cost is higher now but it also rely on the price of other input as petrol is not the sole input of all the goods. No doubt, the inflation rate this year will be higher but not 40%.
Asking for payrise do not solve the problem. Giving us more money to spend means further increasing the inflation rate! This is because increase of demand will lead to price increase. This is simple economic. On the other hand, increasing of salary by too much will drive the inflation rate up and up since our disposable income (Y (total income) = C (disposable income) + I (savings and investment) + T(tax)) increase. Our power to buy has increase. This is not the solution. This will cause recession in the future where all the goods are too expensive!
Deflation is a BAD thing. It means our economy is contracting. It also means increase of unemployment! So do you wish to lose your job for a lower price of the good or keep your job and cope with the price increase?
Therefore, the most reasonable solution to cope with inflation is savings! Start saving the money into bank account. Or even invest (eg mutual funds)