Spiralling Out Of Reach
While salaries have risen over the past two decades, workers' purchasing power has inversely diminished and it costs more than double to buy a house or a basic car today compared with 20 years ago.
When Jai Balan started working in a clerical position in 1984, his salary was only RM500. However, he was prudent with spending and was able to just get by in the city.
That was when the cost of living was much lower. Says Balan, 50, "Of course, it was all down to managing my money properly. I had no commitments, I shared accommodation and took public transport."
At the time, a graduate's salary was considered very comfortable. At RM1,000 plus, he or she could afford the instalments for a car and a single-storey house.
After all, a Japanese-made car then cost about RM16,000 and a double-storey house in a prime location in Petaling Jaya was going for about RM130,000.
Now, more than two decades later, city dwellers are struggling with soaring living expenses, further aggravated by the recent surge in fuel prices.
Bank executive Daniel Loke, 34, who has been working for 10 years, was only recently able to buy his first home – an apartment in Kampung Sungai Kayu Ara, Petaling Jaya. He had to scrimp and save for five years for the down payment.
"My first job paid only RM1,500. Living expenses in Kuala Lumpur were high then and my salary was insufficient to invest in any property," he said.
"But with raw material prices rising, I can understand why property prices are high. It is very, very difficult for younger people and I wonder if they will be able afford a house in future."
Fresh graduate M.K. Lee, 24, earns RM2,000 a month and finds it near impossible to save.
"After the usual deductions (EPF and income tax), I have enough for rental, food and transport expenses and a decent social life. I have no plans to purchase a house or car any time soon," she says, adding that she can’t afford to take on additional financial expenses.
"I still want to live a decent life and not have to be out of cash before the end of the month. I would like to own my own house one day, but not until my financial situation improves significantly."
While salaries have risen over the past two decades, the workers’ purchasing power has inversely diminished. For example, it costs more than double to buy a house or just a basic no-frills car now compared to then.
For instance in 1986, a Proton Saga 1.3S cost RM16,974 while the current Proton Saga M-line (manual) cost 120% more at RM37,500. For housing, in 1988, a double-storey house in Subang Jaya in the Klang Valley cost RM130,000 but the price has surged 130% to RM300,000 now.
Basic food items like a 400gm loaf of bread cost RM1.60 in 1993 and the price has risen 30% to RM2.10.
In 1983, petrol cost RM1.04 per litre; now it is RM2.70. Light crude oil has surged to US$135 per barrel from about US$30 in 1983.
The stark reality for the average Malaysian now is that the price tag for cars to houses and also most basic items have surged 100% or more over the past two decades and will continue to rise.
According to Malaysian Rating Corporation Bhd (MARC) Alias chief economist Nor Zahidi Alias, the CPI from 1993 to 2007 has increased by 49.3%.
One method of calculating the average income of a citizen is the gross national product (GNP) per capita. According to Bank Negara’s 2007 annual report, it is US$6,721 (RM23,103).
Nor Zahidi says this shows wages had risen 184.8% compared with 1993. However, the wages in the manufacturing sector increased at a slower pace of 147.5%.
"From the numbers, it seems that the per capita income and manufacturing wages have kept up with inflation," he says. But he explains that workers in other industries or in the government services may not have seen their salaries keeping pace with those in the manufacturing sector.
"The current inflation is more problematic because it is due to high food prices," he adds.
According to the latest inflation data released by the Government, the CPI in May accelerated at its fastest pace in 22 months. It increased from 3% year-on-year in April to 3.8% year-on-year and this came above market expectations of 3.4%.
CIMB Economic Research said soaring food prices finally made their way into the inflation numbers. Prices for food rose 2.3% month-on-month and 8.2% year-on-year, led by sharply higher prices for rice and cereal products (5.7% in April).
"The heightened global concerns over the looming food prices, especially rice, have spilled over to Malaysia, which was spared from the spreading effects of skyrocketing global food prices. The rise in food prices is here to stay, reflecting the cascading effects from the hike in fuel prices and electricity tariffs," it said.
CIMB Research expects inflation to spike from June onwards. It said the steep 39.4% to 63.3% hikes in fuel prices on June 5 were expected to push inflation rate higher to between 6.5% and 6.8% in June and would remain between 5.9% and 6.6% in the second half of this year.
It said inflation was likely to hover in the region of 4.6% to 5.6% in January to May next year before easing off in the second half of next year as the price hikes effect lapse.
"Our CPI growth estimate is pegged at 4.7% this year and 3.0% in 2009. We would caution that inflation numbers may surprise on the upside if the secondary price effects come in stronger than expected," it said.
Ratings Agency of Malaysia (RAM) chief economist Dr Yeah Kim Leng says annual growth figures per capita income of 4% to 5% (in the past 20 years) indicate that salaries have kept up with rising costs although this might not be for every worker.
"The per capita income is an average and it might mask out the difference in the higher and lower income groups. Unskilled and semi-skilled workers especially will really feel the effects of inflation as their wages might not have kept up with the skilled group," he says.
Meanwhile, an economist with a local research house disagrees that salaries have kept pace. While the CPI is generally used as one of the few benchmarks to adjust salaries, this might not reflect an individual’s purchasing power, he says.
The discrepancy is because prices of goods and services tend to increase at a much faster pace than is reflected by salary adjustments.
"Salaries adjusted over the past 20 years or so may not take into consideration true purchasing power," he says, adding that in general, purchasing power has declined by about one-third.
Another area where prices have gone up is health care, transportation and property. "While there is no real direct impact on direct cost, there is indirect cost factored into the prices of retail goods and services. The magnitude of price increase is far higher than the actual CPI readings," he says.
For example, tuition fees have risen and food portions reduced and, in real terms, disposable income has shrunk, although this is not reflected in the CPI, which the economist feels is distorted and obscure.
"The man on the street is suffering, but this is not reflected in the CPI because price-controlled items are included."
The economist says one would only have to look at three items – house, petrol and health care to show how purchasing power has reduced (see table on The Rising Cost of Living).
"There is no way a fresh graduate can afford a house that costs RM300,000. Even if he places a down-payment of RM30,000, he would not be able to afford the repayments," says the economist.
By Joseph Chin, Joseph Loh and Rashvinjeet S. Bedi
The Star Oline, 22 June 2008
While salaries have risen over the past two decades, workers' purchasing power has inversely diminished and it costs more than double to buy a house or a basic car today compared with 20 years ago.
When Jai Balan started working in a clerical position in 1984, his salary was only RM500. However, he was prudent with spending and was able to just get by in the city.
That was when the cost of living was much lower. Says Balan, 50, "Of course, it was all down to managing my money properly. I had no commitments, I shared accommodation and took public transport."
At the time, a graduate's salary was considered very comfortable. At RM1,000 plus, he or she could afford the instalments for a car and a single-storey house.
After all, a Japanese-made car then cost about RM16,000 and a double-storey house in a prime location in Petaling Jaya was going for about RM130,000.
Now, more than two decades later, city dwellers are struggling with soaring living expenses, further aggravated by the recent surge in fuel prices.
Bank executive Daniel Loke, 34, who has been working for 10 years, was only recently able to buy his first home – an apartment in Kampung Sungai Kayu Ara, Petaling Jaya. He had to scrimp and save for five years for the down payment.
"My first job paid only RM1,500. Living expenses in Kuala Lumpur were high then and my salary was insufficient to invest in any property," he said.
"But with raw material prices rising, I can understand why property prices are high. It is very, very difficult for younger people and I wonder if they will be able afford a house in future."
Fresh graduate M.K. Lee, 24, earns RM2,000 a month and finds it near impossible to save.
"After the usual deductions (EPF and income tax), I have enough for rental, food and transport expenses and a decent social life. I have no plans to purchase a house or car any time soon," she says, adding that she can’t afford to take on additional financial expenses.
"I still want to live a decent life and not have to be out of cash before the end of the month. I would like to own my own house one day, but not until my financial situation improves significantly."
While salaries have risen over the past two decades, the workers’ purchasing power has inversely diminished. For example, it costs more than double to buy a house or just a basic no-frills car now compared to then.
For instance in 1986, a Proton Saga 1.3S cost RM16,974 while the current Proton Saga M-line (manual) cost 120% more at RM37,500. For housing, in 1988, a double-storey house in Subang Jaya in the Klang Valley cost RM130,000 but the price has surged 130% to RM300,000 now.
Basic food items like a 400gm loaf of bread cost RM1.60 in 1993 and the price has risen 30% to RM2.10.
In 1983, petrol cost RM1.04 per litre; now it is RM2.70. Light crude oil has surged to US$135 per barrel from about US$30 in 1983.
The stark reality for the average Malaysian now is that the price tag for cars to houses and also most basic items have surged 100% or more over the past two decades and will continue to rise.
According to Malaysian Rating Corporation Bhd (MARC) Alias chief economist Nor Zahidi Alias, the CPI from 1993 to 2007 has increased by 49.3%.
One method of calculating the average income of a citizen is the gross national product (GNP) per capita. According to Bank Negara’s 2007 annual report, it is US$6,721 (RM23,103).
Nor Zahidi says this shows wages had risen 184.8% compared with 1993. However, the wages in the manufacturing sector increased at a slower pace of 147.5%.
"From the numbers, it seems that the per capita income and manufacturing wages have kept up with inflation," he says. But he explains that workers in other industries or in the government services may not have seen their salaries keeping pace with those in the manufacturing sector.
"The current inflation is more problematic because it is due to high food prices," he adds.
According to the latest inflation data released by the Government, the CPI in May accelerated at its fastest pace in 22 months. It increased from 3% year-on-year in April to 3.8% year-on-year and this came above market expectations of 3.4%.
CIMB Economic Research said soaring food prices finally made their way into the inflation numbers. Prices for food rose 2.3% month-on-month and 8.2% year-on-year, led by sharply higher prices for rice and cereal products (5.7% in April).
"The heightened global concerns over the looming food prices, especially rice, have spilled over to Malaysia, which was spared from the spreading effects of skyrocketing global food prices. The rise in food prices is here to stay, reflecting the cascading effects from the hike in fuel prices and electricity tariffs," it said.
CIMB Research expects inflation to spike from June onwards. It said the steep 39.4% to 63.3% hikes in fuel prices on June 5 were expected to push inflation rate higher to between 6.5% and 6.8% in June and would remain between 5.9% and 6.6% in the second half of this year.
It said inflation was likely to hover in the region of 4.6% to 5.6% in January to May next year before easing off in the second half of next year as the price hikes effect lapse.
"Our CPI growth estimate is pegged at 4.7% this year and 3.0% in 2009. We would caution that inflation numbers may surprise on the upside if the secondary price effects come in stronger than expected," it said.
Ratings Agency of Malaysia (RAM) chief economist Dr Yeah Kim Leng says annual growth figures per capita income of 4% to 5% (in the past 20 years) indicate that salaries have kept up with rising costs although this might not be for every worker.
"The per capita income is an average and it might mask out the difference in the higher and lower income groups. Unskilled and semi-skilled workers especially will really feel the effects of inflation as their wages might not have kept up with the skilled group," he says.
Meanwhile, an economist with a local research house disagrees that salaries have kept pace. While the CPI is generally used as one of the few benchmarks to adjust salaries, this might not reflect an individual’s purchasing power, he says.
The discrepancy is because prices of goods and services tend to increase at a much faster pace than is reflected by salary adjustments.
"Salaries adjusted over the past 20 years or so may not take into consideration true purchasing power," he says, adding that in general, purchasing power has declined by about one-third.
Another area where prices have gone up is health care, transportation and property. "While there is no real direct impact on direct cost, there is indirect cost factored into the prices of retail goods and services. The magnitude of price increase is far higher than the actual CPI readings," he says.
For example, tuition fees have risen and food portions reduced and, in real terms, disposable income has shrunk, although this is not reflected in the CPI, which the economist feels is distorted and obscure.
"The man on the street is suffering, but this is not reflected in the CPI because price-controlled items are included."
The economist says one would only have to look at three items – house, petrol and health care to show how purchasing power has reduced (see table on The Rising Cost of Living).
"There is no way a fresh graduate can afford a house that costs RM300,000. Even if he places a down-payment of RM30,000, he would not be able to afford the repayments," says the economist.
By Joseph Chin, Joseph Loh and Rashvinjeet S. Bedi
The Star Oline, 22 June 2008
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