What are we doing to avoid stagflation?

The release of data by the Statistics Department raises alarm bells of possible stagflation.

Stagflation implies slowing or stagnant growth and rising inflation. The statistics show the industrial production index decreased by 5.1 per cent in May this year compared with May last year.

In May, both exports and imports declined on a month-on-month basis by 4.7 per cent and 0.4 per cent, respectively.
The Malaysian Rating Corp revised downward the earlier estimated gross domestic product growth rate of 5.3 per cent for this year to four to five per cent.

The earlier scepticism about the official economic growth and inflation projections is now proving to be justified.

We can only hope that the situation will not deteriorate and lead to stagflation. Unfortunately, the global economic outlook does not appear encouraging.

The United States economy, which is the biggest in the world, is also floundering. Its economy grew by 1.9 per cent in the first quarter of this year, 1.5 per cent in the second quarter, with a projection of less than three per cent for the whole of this year and next year.

The American debt crisis is staggering.

Greece, Spain, Portugal, Italy and other countries are facing economic decline and financial instability, and reinforced by the Japanese economic malaise, our export prospects can be adversely affected.

Now, the fear of rising inflation is real. The consumer price index rose by three per cent in the last six months and at a higher rate of 3.5 per cent in June compared with June last year.

What is worse is that the CPI for food and non-alcoholic beverages went up by 4.5 per cent for the first six months of this year compared with the same period last year.

This is worrisome as we are talking about the poor and low-income groups having to pay so much more for the basic consumption of food and beverages.

So, how will the poor cope with rising prices?

I am sure the government is aware that low growth and high prices may lead to social dissatisfaction and unrest.

It is hoped that the government will be more transparent and communicative with the public on these economic trends.

The government will need to inform the public soon that it recognises the impending dangers of weaker employment opportunities and lower standards of living.

The government will also have to show that it has an anti-stagflation strategy to address socio-economic problems to instil more hope and confidence in the public.

Article published in The New Straits Times.

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