So without inflation, where did the margin between RM 2.50 and RM 4.00 go? Some would go to the uncle/aunty making the noodles in the stalls. Some would also go to the people who made the noodles and curry powder. And also the people who rared the chicken and caught the prawns. Between year 1996 and 2011, cost of every bowl of noodles went up by an average of RM 1.50. By right everyone involved in producing the bowl of noodles and renting the stalls would have made more. But they are not. Shocking? This gets even worse in the corporate industries, where educated professionals enter the workforce getting paid peanuts. 15 years ago fresh graduates looking for marketing jobs get paid RM 1200 a month. Today they get, at most RM 1400.
Now lets factor in inflation. In the simplest terms, inflation actually equals the people's spending power. Given that goods and services are always scarce and limited, people's ever growing demands will drive prices up. When the people make more money, they will naturally be able to better afford goods that they demand. They will then pay a price higher than market rate in order to attain what they want, simply because they can now afford it. This is inflation.
But given that, for example, the price of a bowl of curry noodles is now almost 100% more expensive than it was 15 years ago, and that the monthly pay for an average Marketeer has gone up by a mere 20%, where did all the inflation come from?
I don't compare apples to oranges because on a greater scale, everything is inter-related. A market supplies goods and services as just that, and how much they are worth depends on how rich the people demanding them are.
Who makes all the money? Why is it that you couldn't see what was in front of your face all these while? Maybe there will be an answer to this next week.
pardon me if my understanding is wrong. me engineer not economist :)
ReplyDeleteinflation basically means like just what u described it, where the purchasing power of money is less than what it used to. the causes for this imo, is that there is too much influx of money in the market, making the value of it smaller.
the central bank works by printing out money to banks but with an interest rate, meaning that if we take 100m from central bank we need to pay back more with interest. this is called the budget deficit.
to stimulate growth, naturally the central bank needs to increase the amount of pie in the market ie increase the printing of money.
however, firms in this country as we know it, is not efficient due to the policies of the government protecting/bailing out the weak firms, not to mention the amount of kickback money paid to an elite few. so this means most of the pie goes to these elites.
as firms are not efficient, they make less money and therefore, cannot afford to increase the general workers pay so as to remain profitable (need to pay back central bank with interests). the pie is less for us
so we can see that there is more money in the market, but the amount of money belonging to the poorer population is still not increasing.
Your input is correct, but there are a lot more behind every instrument your described.
ReplyDeleteEg: central banks cannot print money to make up for higher demands because that will cause magnified inflations which cannot be controlled.
Eg: when central banks pump out 100m, the multipler effect in the economy will ensure what comes back in forms of, say taxes, will definitely be more. Provided of course the effect took place.
But sadly Malaysia is known for bailing out certain failed businesses, which distrupts the nature of fair competition and ultimately leads to an unbalanced economy. Rich gets richer, poor gets poorer.