Higher Prices For Essential Items Cannot Impact High Income Nation

February 14, 2011 17:28 PM
Higher Prices For Essential Items Cannot Impact High Income Nation
By Norsyafawati Wahab and Syazwani Jusoh

KUALA LUMPUR, Feb 14 (Bernama)-- Malaysia need not worry much about the high prices of essential items such as food and oil, if it successfully moves to a high-value economy, and from a middle to high income nation.

"Yes, food prices will increase but if the income of the people increases by 30 per cent and food prices only go up by 10 per cent, then there would not be so much impact," said Grant Thornton managing director and managing partner, Datuk Narendra Kumar Jasani.

He told Bernama recently, Malaysia can achieve its initiative of becoming a high income nation by moving into the services sector, such as hotel and tourism as well as being the regional hub for multinational companies.

He said inflation is something that the government and public have to manage as food prices have increased not only in Malaysia but worldwide.

Narendra said rising prices were the consequence of changes in weather patterns resulting in floods, drought and very cold spells which affect food production.

On subsidies for basic essentials, he felt, it should be continued and especially, for the lower income group.

"The government needs to take step by continuing and increasing subsidies for food items and not also increase the cost of essential items such as petroleum, gas and electricity, at this juncture," he said.

On the measures being undertaken by Bank Negara Malaysia to reduce inflation, he said the effect would be marginal, as inflation has arisen due to an increase in the prices of food items globally, rather than overall demand.

Asked about the Statutory Reserve Requirement (SRR) to manage inflation, Narendra said there is a possibility the central bank would raised it.

The increase in SRR will reduce the lending by commercial banks and therefore, demand and inflation as well, he explained.

He said the beneficial effects are particularly for the property sector, as it cools, the recent substantial increase in prices.

As for a possible move to raise the overnight policy rate (OPR), he said, it will increase the cost of borrowing, which may not have the effect on reducing demand.

"Increasing the OPR will increase the cost and thereby cause inflation," he added.

-- BERNAMA