The economic platform said that while it was a marginal increase, the country must be prepared with an adequate strategy to avoid the emergence of rampant consumer prices which would compromise the sustainability of the economy’s recovery after the Covid-19 lockdown measures.
“Despite being a very small increase, and despite inflation predicted to remain within 3% in 2021, Bank Negara and policymakers should keep such a trend under close observation.
“From the monetary policy perspective, MEO invites Bank Negara to remain prudent and to avoid further monetary easing,” added MEO, a joint platform promoted by the Center for Market Education (CME) and Bait Al-Amanah (BAA).
CME’s chief executive officer Carmelo Ferlito said the uptick marked the first increase in the price of input materials in the past nine months.
He noted that while overall prices had been kept down by the current economic crisis, four elements were pushing prices up – supply chain shocks and disruptions, temporarily extended expansive fiscal policies, quantitative easing (low interest rates) and the first signs of economic recovery.
“Without expansive monetary and fiscal policies, prices would be lower.
“This means that purchasing power will be more easily restored, leading the economy towards a more sustainable path.”
Meanwhile, Abel Benjamin Lim, an economist at BAA, added that such emergent inflationary pressures showed that expansive fiscal and monetary policies “always come at a cost”.
Lim said that although fiscal injections were necessary due to Covid-19 lockdown effects, a more targeted approach towards virus containment could have led towards fewer fiscal interventions.
“It will soon become evident that we need to further intervene in order to counteract the effects created by a certain policy (fiscal stimuli), which in turn was made necessary by another policy (movement control order),” said Lim.
Calling on the government to abandon a “hole-and-patch” approach to economic problems, MEO said policymakers should implement a more holistic strategy based on a sound trade-off analysis.
MEO also urged the government to move away from an aid-based policy towards a more comprehensive strategy to boost confidence, stating that this would lead Malaysia on a more sustainable recovery path rather than on a path “mainly led by government support”.
With specific reference to the emergent inflationary pressures, MEO suggested that the government avoid further combinations of lockdowns and fiscal packages in order to minimise the future need for economic support.
Apart from focusing on targeted approaches aimed at protecting vulnerable communities, MEO also proposed implementing an “inflation observation group” in order to monitor, interpret and tackle future developments.