Rising Cost of Living in Malaysia

While cost of living will rise in Singapore due to the impending rise in the Goods and Services Tax to 7 per cent from 5 per cent, the cost of living has already hit the roof in Malaysia.

The main culprit is the big jump in petrol prices, following the Malaysian government's move to cut state subsidies drastically this year to help cope with the big jump in global oil prices. Many businessmen and even traders at pasar malams (night markets) have marked up their price tags, citing higher transportation costs. Some increases could well be justified. Others simply smacked of profiteering.

The Malaysian ringgit is definitely worth a lot less nowadays following the big jump in petrol prices, based on dad's anecdotes from friends and from his casual observation. Petrol pump prices have gone up by a staggering 40 per cent in two years. Consumers have definitely felt the pinch. The official Consumer Price Index increase of 4 per cent is definitely understated.

Instead of removing subsidies overnight, the government should have heeded former prime minister Dr Mahathir Mohamad's advise to allow the currency to appreciate more following its de-pegging. It would have been a less painful option.

Prices will rise further in Malaysia. This is because the Malaysian government is set to introduce its first GST in 2007. Will there be an offset package like in Singapore to help the poor? Malaysia may well announce some form of package to offset the impact of the GST on the poor.

But implementation of government policy in Malaysia is, as usual, another story.