Saturday, 4 February 2017
A Malaysian perception: Cost of Living vs Standard of Living and affordability
The general perception is to blame BN for price increases in Malaysia and if you listen to Pakatan's promises, you would believe that prices will never increase.
It's a false hope and dream. It CANNOT BE DONE.
In fact, since 2008 Pakatan State Governments have raised prices of licenses, parking rates and business permits (Penang and Selangor), water charges in Penang 4 times.
On top of that Penang also increased assessment rates, doubled the rental rates of stalls and doubled the water extraction rates - all of which causes costs to individuals and businesses which also increases inflation.
But the reality is that prices have increased in every country in the world and all throughout thousands of years of history.
Show me one country that does not have any increase in house or food prices in the past 20 years. We move there together.
We should not confuse the cost of living with the standard of living. Just blindly reducing the cost of living is going against world-wide trends and going against history.
That is why DAP and Pakatan's promises are lies and they WOULD NOT BE ABLE TO DELIVER on this without inflicting massive damage and distortion to our economy.
For example, the price of goods in the 1960s and 70s were much lower than now but is the standard of living and people's livelihood any better than now?
The standard of living, among others, includes factors such as real income, quality of jobs, availability of jobs, a safer and greener environment, quality and affordability of housing, access to quality healthcare, quality and availability of education, better roads and better infrastructure.
Would you also want the house that you buy today at RM100,000 to still be valued at RM100,000 twenty years later?
If you were a FELDA settler, would you want your income to be RM2,000 per month now and still be RM2,000 twenty years later? If palm oil prices increase, cooking oil prices will also increase. But if palm oil prices do not increase then how will the FELDA settlers income increase too?
Since it impossible to contain the cost of living forever as it is a world-wide and a historical trend, BN's transformation policies and strategies is to minimize inflation - especially for the lower income groups - and increase the real income level of the Rakyat at a faster rate than inflation and increase our overall standard of living.
This is the real challenge and a challenge which BN can prove that they have substantially delivered on.
To ensure the B40 income group are not adversely impacted and helped, there are many govt policies that have helped - such as BR1M, minimum wage, school aid, KR1M, reducing prices of passports and other govt services, capping the price of electricity for the lowest income groups, exempting those with RM5,000 to no longer pay income tax, exempting thousands of items from GST, subsidies for certain items such as tong gas prices, cooking oil and many others.
The many development programs and job creation efforts by the govt coupled with a focus on increasing domestic and foreign investments have also helped dramatically increase the income levels of all Malaysians - particularly the Bumiputra segment which had lagged the overall population before.
HUMAN NATURE
Pakatan have once again taken advantage of the recent increases of food prices - particularly vegetables and seafood prices - due to the monsoon and festival season and the recent petrol prices increase in an attempt to incite the public.
It is human nature that people tend to look at the short-term variations without considering the true picture. We can easily get incited easily by those with personal agendas when prices of food goes up due to monsoon season reducing supply and due a major festival increasing demand.
But when the monsoon and festival seasons are over and the prices goes back down, those who incite us will keep quiet and pretend nothing happens.
However, there is no disputing that there will always be a long-term increase in food prices - something that has happened since thousands of years ago.
But what we do not easily see is the long-term increase in our standard of living and the increase in general affordability.
THE BIG MAC AND RON95
One way to see this is to use the famous The Economist's Big Mac index which has recorded the price of a Big Mac in each country since 30 years ago in 1986.
We can also look at the price of petrol - specifically RON95 since historical prices are widely recorded and is indisputable.
Some will say that we do not eat Big Macs everyday and it does not represent real life but due to so many differing factors - quality, location, the different food sources that goes into making a Big Mac, brands - among other foods, this is the closest that you can get to compare food prices and hence, food price inflation, whether locally or among countries.
In 1993, the price of a Big Mac in Malaysia was RM3.35 while RON92 (not even RON95) was RM1.06 per liter.
Data from the Department of Statistics shows that the Median household income for Malaysians during that year was RM1,077 per month for the median Malaysian family and RM887 for the median Bumiputra family.
The Median Malaysians household income has improved dramatically - especially since 2009.
This means that if you spent your entire monthly income on Big Macs, you can only afford to buy 321 Big Macs in the entire month - which is why a McDonalds visit was considered a luxury 24 years ago for many Malaysian families - particularly for the Bumiputra household whose income can only afford to buy 265 Big Macs.
Whereas the median Malaysian family could only buy 1016 litres of RON92 per month then (Bumiputra = 837 litres).
However, the Median monthly Household Income 16 years later in 2009 would have increased to RM2,830 for the median family and RM2,531 for Bumiputra families.
In 2009, the price of a Big Mac had increased to RM6.80 from RM3.35 while RON95 petrol (an upgrade from RON92, which is no longer available) would cost RM1.80 per litre.
Thus the median family at that time can now afford 416 Big Macs and 1.572 liters - 95 more Big Macs (29.45% increase) and 556 more liters (54.74% more) compared to 16 years ago.
The Bumiputra family however can now afford 372 Big Macs and 1,406 liters - which is 107 more burgers (40.6% increase) and 569 liters more petrol (68.04%) than 16 years ago - outperforming the general population.
This clearly proves three things:
1. Petrol and McDonalds are more affordable in 2009 to the median family compared to 1993
2. Although still below the average of Malaysia, the well-being of the Bumiputra families had increased at a faster pace than the general population.
3. The standard of living for Malaysians and Bumiputra have increased.
Fast-forward another 5 years from the year 2009 to the year 2014 (2015 and 2016 data not available yet but expected to have further improved) and you can see how the various transformation policies to assist the B40 segment and reduce income disparity mentioned above have helped the median Malaysian family.
In the year 2014, the Median monthly household income was measured at RM4,585 for Malaysian families and RM4,214 for Bumiputra families.
At this time, the price of a Big Mac is now at RM7.60 while RON95 petrol was RM2.30 per liter, the same as it is now in February 2017.
In 2014, the median Malaysian family can now afford 603 Big Macs (44.96% more than 2009) and 1,993 liters of RON95 (26.79% more) while the median Bumiputra family can buy 554 burgers (48.97% more) and 1,832 liters of petrol (30.30% more).
In fact, the increase in the number of Big Macs for the 5 years between 2014 and 2009 is much higher than for the 16 years period between 2009 and 1993.
Despite the currency changes and removal of fuel subsidies, this indicates a much faster improvement in the standard of living for all Malaysians while the bumiputra population continues to gain pace faster to narrow the gap with the general population.
Also, if you listen to the the opposition you may believe that inflation only happens in Malaysia or is worse in Malaysia.
Again, the Big Mac Index shows this is not true. In this table, Malaysia has experienced the second lowest food price inflation and only lags behind Japan which has been grappling with serious deflation for some time.
Pakatan's propaganda makes it seems they can stop prices from increasing but the reality is that they keep increasing prices too as explained earlier. And plus their false promise is really going against basic economics, against history and against worldwide trends.
Or perhaps Pakatan wants to make us into a communist country if they win, abandon the free market and control the price of everything in Malaysia?
If not, it is better for them to export their "expertise" to control prices to the other countries in the world on this table as they need Pakatan more than us when it comes to inflation.
Another point to note that even though Malaysia had moved away from blanket subsidies which benefits the rich five times more than the poor to targeted aid, one reason why petrol was much less affordable in 1993 to Malaysians was due to the tax on fuel imposed by Mahathir
In Dec 1993, the global price of crude oil was just USD13.56 per barrel while the exchange rate was USD1 to RM2.40 - meaning crude oil was just RM32.54 per barrel but RON92 was RM1.06 per liter then.
Compare this to the price of Crude oil in 2009 of USD74.67 per barrel (or RM278.52) and the price in 2014 of USD111.88 (RM391.55) per barrel where petrol prices was between RM1.80 to RM2.30 per liter.
Despite the more than 10 times difference in the ringgit price of crude oil between 2014 and 1993, the price of petrol locally only doubled as Mahathir had taxed petrol at 58.62 sen per litre for decades. These taxes were abolished in the year 2004 after Mahathir retired.
CARS AND HOUSE AFFORDABILITY
Over the years, not only have food and petrol become more affordable to the Malaysians but other purchases too - for example, cars and houses.
According to Department of statistics household income data, the Median household monthly income in 1989 (27 years ago) was RM816 per month.
At that time, the cheapest car you can buy was the Proton Saga 1.3 at RM17,575.
This would mean that the cheapest car was 21.5 times of the average household's income.
Moving on to 2014 where the median household is now RM4,585 per month (it had jumped from RM2,830 in 2009).
The cheapest car you can buy now is the Perodua Axia at RM24,600.
Not only does this car have as much interior space as the 1989 Proton Saga, has more specifications, much more safer and also more fuel economical.
At this price, it would mean that the cheapest car would be 5.36 times of the average household's monthly income - a big difference compared to 21.5 times in 1989.
The increasing affordability of cars to Malaysians is proven by the ever increasing amount of cars on the road and car sales figures by the Malaysian Automobile Association (MAA).
In 1990, Malaysians bought 106,454 private cars. At that time our population was 18.21 million people.
By the year 2015, when our population was 30 million people, we bought 591,298 cars in that year. Out of these, 94,902 units were Honda cars which sells for RM70,000 and above - almost as many as all cars sold in 1990 where the majority were Proton and Perodua cars priced below RM30,000. This clearly shows that the middle class had improved their standard of living and cars are now more affordable to many more Malaysians.
This again proves cars are much more affordable to more Malaysians as our overall income and standard of living had increased despite an increase in price.
According to the agency that tracks property prices, National Property Information Center (NAPIC) figures, a RM100k house in 1990 would be equal to RM433.4k in 2014.
Therefore, in 1989 a RM100k house would cost 122.5 months of the median household income.
While in 2014, a RM433.4k house would cost 94.5 months of the median household income - again indicating a general increase in affordability for property purchases despite a big increase in price.
DON'T GET INCITED BY LIES EASILY
It is thus important that we do not fall into the trap and buy into the propaganda by the opposition and just look at price increase in absolute term but in RELATIVE increase when compared to our income levels and most important of all, the standard of living of Malaysians which have enjoyed dramatic improvements since 2009.
Still don't believe me? Go look at the airports to see how many more Malaysians are traveling nowadays or go to the suburbs and terrace houses and you will see that the number one problem of most suburbs is that there is not enough places to park their cars. Or look at the roofs of the houses with Astro TV dishes, which seems to grow wildly like mushrooms.
There is no doubt that Malaysians are much better off than ever before and more goods are more affordable to us when compared to before despite an inevitable increase in the Cost of Living - a historical and global trend.
Therefore the focus of any good government is to always increase income levels, relative affordability and the Standard of Living - as compared to just Cost of Living using policies that goes against basic economics theory that will badly distort the nation and cause long-term ruin like in the case of Venezuela and its unsustainable price controls - a country which Pakatan used to ask BN to learn from in order to control prices.
Here is a video of a Sotong in 2014 - when petrol price also increased to RM2.30 per litre - telling Malaysia that we should be Venezuela too.
Since then Saudi Arabia had more than doubled their petrol prices while at one stage in Feb 2016, Malaysia's petrol price was even cheaper than Brunei when we tracked global oil prices down while Brunei did not. And plus, he did not tell his audience that Malaysia is now a net importer of oil (we still export a lot of gas) and that Malaysia is nowhere near as big an oil exporter as Saudi, Venezuela or Brunei.
To make matters worse from "when petrol increase 20sen, karipap will also increase 20sen" Rafizi, when petrol prices dropped back from RM2.30 to RM1.60 months later he could not explain why karipap did not reduce in price.
Despite huge amount of price controls and subsidies and what Rafizi told us about Venezuela, last year Venezuela had inflation of 800% and economic contraction of 19%, widespread shortage of everything, hunger and on the brink of total collapse.
Venezuela is a clear example that Pakatan's promised policies before would give short-term pleasure but will bring great disaster to Malaysia in the medium to long-term as it is against good economics governance and basic theory of supply and demand.
Due to good economic growths and policies to increase our income levels while providing aid to the poorer section of society, the overall Malaysian standard of living has increased despite the many misleading propaganda spread by the politicians who just wants to incite you, make you feel bad by lying to you so that they can grab power for themselves.
Do you really think that these people can fight against basic economics theory of supply and demand, against thousands of years of history or fight against global trends? Do you think they will succeed or are they just lying to you?
A good government or political party should never lie to the public that they can keep prices the same forever as it is just not possible. Instead, they should promise to keep increasing the income levels, economic growth and increase the standard of living of the people while continuing to provide aid and assistance to the segment of the population most in need of help.
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