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Inflation Tutorial - Nyan Thu Htet

Malaysia is experiencing moderate inflation projected between 2% and 3% in 2021, with core inflation remaining subdued due to spare capacity in the economy. While moderate inflation can stimulate economic activity and reduce the real burden of debt, it can also erode purchasing power and create uncertainty for businesses. The Bank Negara Malaysia (BNM) is taking measures to maintain economic stability and ensure inflation remains manageable, which is crucial for long-term growth.

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19 views1 page

Inflation Tutorial - Nyan Thu Htet

Malaysia is experiencing moderate inflation projected between 2% and 3% in 2021, with core inflation remaining subdued due to spare capacity in the economy. While moderate inflation can stimulate economic activity and reduce the real burden of debt, it can also erode purchasing power and create uncertainty for businesses. The Bank Negara Malaysia (BNM) is taking measures to maintain economic stability and ensure inflation remains manageable, which is crucial for long-term growth.

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Nyan Thu Htet TP084945

Malaysia is currently experiencing moderate inflation with headline inflation projected to


average between 2% and 3% in 2021. Core inflation remains subdued, reflecting spare capacity
in the economy and slack in the labor market. This indicates that demand-pull inflation is not a
significant concern at present. BNM Governor Nor Shamsiah has also emphasized that the
country is not facing stagflation which means a situation where high inflation coincides with
stagnant economic growth and high unemployment.
Inflation can have varying effects on a country’s economy, depending on its nature, level,
and duration. On the positive side, moderate inflation can stimulate economic activity. It
encourages spending and investment, as consumers and businesses are less likely to hoard cash
in anticipation of rising prices. Additionally, inflation reduces the real burden of debt, which can
benefit borrowers, including governments, as the real cost of repaying loans decreases over time.
However, inflation can also have negative consequences if not managed effectively.
Rising prices reduce the purchasing power of money, which can particularly impact individuals
on fixed incomes. Persistent inflation creates uncertainty for businesses, making it difficult to
plan for future costs and pricing, which may discourage long-term investments. Furthermore,
inflation erodes the real value of savings unless interest rates rise proportionately, potentially
discouraging saving behavior. There is also a risk of a wage-price spiral, where increasing prices
lead to demands for higher wages, which in turn further push up production costs, perpetuating
inflationary pressures.
Inflation also affects broader economic indicators such as exports and interest rates. If
inflation in Malaysia outpaces that of its trading partners, the cost of Malaysian goods could rise,
reducing their competitiveness in international markets and potentially worsening the trade
balance. To combat rising inflation, BNM may raise interest rates, which increases borrowing
costs and can slow down economic activity.
In Malaysia’s case, the current inflation level is not expected to significantly harm the
economy. BNM and government have implemented supportive measures to maintain economic
stability while ensuring inflation remains within manageable levels. This balanced approach is
critical to sustaining recovery and fostering long-term growth.

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