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aws账号(www.2km.me)_To fight inflation, we must first tolerate it

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After 10 consecutive months of negative inflation in 2020, the Consumer Price Index (CPI) shot up from -0.25% in January 2021 to 4.68% in April and subsided to 2% four months later, only to rise again to 2.91% in October. Core CPI has also gone up from 0.58% to 0.66% in the same period; higher but not by much.“Persistent”, as opposed to “transitory”, is a better word to describe inflation right now.

INFLATION is a severe economic woe of late as it is no longer “transitory” as initially claimed.

So, should the government intervene now to tame rising prices? Perhaps not so soon. Since many variables are not within the government’s control, no amount of price intervention would ever suffice to fight inflation.

Understandably, the desire to intervene is immense. We are not only facing high unemployment and a record-low policy rate environment but, more importantly, the government will have to confront fierce political pressure as the 15th general election draw closer.

If the government decides to intervene without hurting short-term growth, a higher debt level is inevitable. Long run wage growth will suffer, pushing the Malaysian economy further away from its high-income dream.

Alternatively, the government may reverse all pandemic-related policies by raising interest rates, increasing tax to reduce money supply, removing incentives, and liberalising the economy’s supply-side through deregulation and free trade. These measures may be effective in the long run but will indeed affect short-run growth.

Make no mistake, things will worsen before they get better as there is no upside to any of these policy options.

After 10 consecutive months of negative inflation in 2020, the Consumer Price Index (CPI) shot up from -0.25% in January 2021 to 4.68% in April and subsided to 2% four months later, only to rise again to 2.91% in October. Core CPI has also gone up from 0.58% to 0.66% in the same period; higher but not by much.

“Persistent”, as opposed to “transitory”, is a better word to describe inflation right now. To be clear, no one had predicted supply to trail severely behind demand for so long.

This scenario will likely continue so long as social distancing measures are in place and international borders remain tight. Along with demand-boosting initiatives like Employees Provident Fund withdrawals and other cash handouts, this is a perfect recipe for (very) high inflation.

Besides, the year-on-year producer price index has been trending at double-digits for the past seven months; the longest streak since at least a decade ago. It came in at 10.61% in April 2021 and then peaked at 13.23% in October, the highest since the Asian Financial Crisis.

While it is evident that prices are rising steadily over the past months, it is unclear to what extent will producers pass the buck to consumers. Producers have probably been footing the high production bill amid deficient demand and prolonged lockdowns.

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