Many announcements made by many people in positions of power. Unfortunately, many are not positions of authority to do so. By authority, I mean, knowledge of the subject matter itself. Subject matter knowledge is first about identifying WHAT PROBLEM, FOR ANY POLICY(IES) IS TRYING TO SOLVE.
Most discussions or the so called proposed solutions on inflation centered around “supply” and “demand”; lacking of supply in particular. Is supply the main culprit, therefore we need a JIHAD on the price escalation?
Another set of discussion is about increasing our own domestic production, of food in particular, as the way to address price/cost escalations. The solution proposed is to increase domestic food production, which allow us to control the price escalation.
Both sets of discussions centered on the assumption that inflation is caused by imbalance of supply versus demand. That is the identified PROBLEM.
My problem with such approach is summarized in one term: “causality”. Supply, demand and prices are directly visible and felt by the people, therefore it is the “effects” or results of the “causes”.
What is the real cause? The answer is in the “Consumers Purchasing Power”, which greatly eroded recently and will continue so for a while more. Simply put, one ringgit cannot purchase as much as before. Why?
The answer is in money and monetary effects due to the increase in money supply which is much faster than the increment in productivity.
Increasing productivity is a “deep structural issue”. It’s hard to explain and extremely unpopular moves, as people hate to change.
Economist, as we think that we have the “magical recipe” to deal with this issue has only one tool: namely Quantitative Tightening (QT), as opposed to Quantitative Easing (QE), by raising interest rates and few other tools to reduce money supply. This is what’s going on everywhere nowadays.
The problem is, the feedback effects from these monetary policies. Nobody (I am talking about economic experts) can tell whether it will work or not. It is just like applying the brake on a fast moving train to slow it down. We can’t tell for sure whether it will work as intended or not.
Post Covid, all countries need to push the economic train to restart. Now, we need to apply the brake on the same train. I am not sure what will the result be.
But I am sure that this is the PROBLEM which need to be solved. It is the root CAUSE of inflation. Supply and demand are just the EFFECTS.
The problem with monetary exercise of QT is glaring to the most vulnerable income group: the so called B40 and also the M40. With almost little savings or depleted savings, they have survived so far due to the supplied money. If this starts to dry up, at the back of increasing prices – they will be double whacked, instead of double whammy.
I have only one advise: BRACE FOR IMPACT; and GOOD LUCK.
Dr. Wan M Hasni 