Subsidies Increase Inflation

The Star Online: Urban poor Malaysians forced to skip meals, sacrifice nutrition due to rising food costs.

https://www.thestar.com.my/lifestyle/living/2022/08/19/urban-poor-malaysians-sacrifice-nutrition-to-cope-with-rising-food-prices

(Economist and The Star columnist Anthony Dass recently wrote that in a discussion with Malaysian Associated Indian Chambers of Commerce and Industry president Datuk N. Gopalakrishnan, a cup of teh tarik has increased by 54% to RM2, while roti canai was up by 67% to RM2.

Nayagam calls for a more comprehensive plan by the government to tackle the impact of rising costs among the urban poor.

Projects implemented also need to be monitored and accounted for in terms of their effectiveness, he urges.

“There are still many families who need help, and every month food aid has to go out. Something is not right.”)

This is the real inflation, over 50%.

All caused by Subsidies. Subsidies increase demand and therefore increase prices. Subsidies reduce production so cause more inflation. Subsidies destroy GDP and economy of Malaysia thun devalue RM, thus causing more inflation.

Thus theories that claim that subsidies cause less inflation in Malaysia is a lie. Even more subsidies in Turkey and Sri Lanka had not reduced their inflation and devaluing. Similarly with Malaysia. Their high interest rates also did not stop inflation because rental prices will be high. Malaysia also increases interest rate which will surely increase rentals but rental inflation has a delayed effect.

High interest rates also did not help Turkey with interest as high as 50%. Similarly for Sri Lanka, because subsidies increase demand artificially.

Removing subsidies will make prices appear high, but not really true because people no longer buy at these high prices, thus reducing inflation. The high prices also make people travel less and cook at home, increasing production, thus reducing inflation even more.

This is the reason why bisiness fear removal of subsidies. They have less business. But if you give cash handouts especially the poor, they will spend all the cash and thus stimulate the economy, creating real GDP, which strengthen the economy, and thus protects RM. Subsidies do not create GDP.

It is vital to give cash to people to spend, not save, which will happen if you give to the rich, those earning above rm10,000 per month. The rich do not need the extra cash, so if given, will just save money and therefore do not stimulate the economy.

As it is, in Malaysia, those earning rm10,000 and above are given rm10,000 per year on subsidies whereas the poor only get rm1,000 per year. This is so unfair and worse, destroy the economy of Malaysia i.e. its RM, not just destroying the poor.