Inflation rises, rakyat rattles

If you’ve gone through macroeconomics, you’d be bedazzled by its wealth of information regarding inflation. What’s more, its definition of it could be as sound as what we see happening in our everyday lives.

Your macroeconomics book would have already given you the idea of what causes inflation in the country, which in fact, affects all of us directly or indirectly. Let’s look at some of the points of inflation factors:

Higher Indirect Taxes (Govt)

When we talk about indirect taxes, we’re talking about the activities we perform everyday. For example, the rise of RM8.20/box of premium cigarette to RM9.00 is an indirect tax. Let’s look at a few examples of indirect taxes:

  1. VATValue Added Taxes, which could also mean products and services tax. More like consumption tax. Imposing a 5% surcharge on ‘Mamak’ shops would be one of the new VATs we see before.
  2. Excise Duties – For example, alcohol, cigarettes and imported cars.
  3. Fuel price hike.

Products we buy everyday are taxed, then pushed on by retailers to the end users, which would probably be you and I. A great example would be below – Cost push inflation.

Cost-Push Inflation
Rising production costs (e.g. Material costs, fuel costs) would always be pushed one level down: Production Unit – Distributor – Retailer – End User. When a business meet with a rise of production costs, they have to maintain their profit margins by increasing the prices sold to the next level, which would probably be the distributor or retailer.

So what are the causes of such? We can identify two main price-inflatory causes:


  1. Rise of Labor Cost
    A very classic example of why labor cost increases is: Wage increase level does not tally with production level increase, falling in  negative trap-line faced by a particular business. You could also come across this sentence which will be quite true, GAJI NAIK, PRODUKTIVITI SAMA.
  2. Rise of (Raw) Material Costs
    Countries that are producing raw materials can also be affected by their own inflation level – Which could affect its prices. A good example would be the raise of energy cost. For example, the raise of electricity and gas cost (to the business being supplied raw materials) would see an increase in purchasing cost, which will then affect the production cost.

That’s just one part. The next section will tell you about another part of inflation causing.

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1 Comments to What are the causes of inflation?

  1. noname

    u said that ”That’s just one part. The next section will tell you about another part of inflation causing.” i would like to know more…


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