IF you think inflation is only reflected in the prices of the products we consume, think again.
It seems some traders, prohibited from raising the selling prices of their goods and services, are resorting to some other ways to sustain their bottom lines amid a high-cost environment. And that include having their products come in smaller packages but sold at the same old prices, and some, in a more sinister way, are cutting corners.
In the case of journalist Yvette G (not her real name), who is also a foodie, a recent lunch with her colleagues at one of their favourite restaurants in the Klang Valley turned out to be a thoroughly unsatisfying experience. Her favourite Spaghetti Aglio dish is now served in a portion half the size it used to be, and the taste, “missing the mark, as some secret' ingredients of the chef seem to have been omitted from the recipe”, she claims.
It is unmistakable that the rising global commodity prices are squeezing the margins of local producers. Yes, consumers are also feeling the pinch, but given the presence of subsidies and, to a certain extent, price controls in the economy, domestic inflation as measured by the consumer price index (CPI) is still relatively mild compared to other countries in the region.
At present, the burden of high commodity prices still falls largely on producers, who are more dependent on imports, compared with consumers, argues RAM Holdings Bhd economist Jason Fong.
Data from the Statistics Department show that Malaysia's producer price index (PPI), which measures the change in input prices, has been accelerating faster than CPI, causing their gap to widen substantially.
In February, PPI rose 7.2% year-on-year (yoy), while CPI rose 2.9% yoy, compared with a growth of 6.9% yoy and 2.4% yoy, respectively, in January.
The increasing producer prices, resulting from higher commodity and raw material prices, will continue to put upward pressure on production costs, Affin Investment Bank chief economist Alan Tan says.
Economists believe that sooner or later producers will have to pass on some of the burden to consumers.
“With economic activities remaining healthy on the back of higher private consumption, we believe some manufacturers will continue to pass the higher production costs to consumers in the form of higher consumer product prices to protect their profit margins. This will then translate into even higher inflation,” Tan explains.
In the meantime, with the cost pressure still higher on producers, one shouldn't be too surprised the next time one finds the package of goods or services now comes in a smaller size. That's one way to cut costs.
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