THE unprecedented soaring food, energy and commodity prices in 2022 have impacted millions of people around the globe, causing hardship to the poor and low and middle-income households as they struggle with the rising cost of living challenge or crisis.
A cost-of-living crisis is defined as “a situation in which the cost of everyday essentials like groceries and bills is rising faster than average household incomes”.
Increased prices of goods and services relative to income growth and wages have squeezed household budgets, leaving them with little or no savings or even borrowings for meeting emergency or contingency needs.
Given that the cost-of-living crisis is having a scalable global impact, governments in both developed and developing countries have implemented a wide range of short-term stop-gap measures and programmes to ease the impact of inflation and cost of living.
The intervention measures were in the form of energy (fuel and gas) subsidies, a limited free train ride and public transport pass, subsidised rent for targeted households, direct cash transfers, export restrictions on certain food items; and family ration cards for the purchase of essential goods.
The policy response and interventions have to be recalibrated at the different stages and pathway of price increases and cost of living trajectory.
The short-term price capping and subsidy interventions come with economic opportunity costs such as unsustainable fiscal cost, wastage and harm to the environment such as fuel.
It has also resulted in misallocation of resources as subsidies divert spending on productive sectors.
Not all policies will be equally effective and some may disproportionately benefit the people. For example, blanket fuel subsidies end up benefitting high-income households more than the lower-income group.
For producers, wholesalers and retailers, the price controls and capping below production cost would mean that businesses will have to absorb the costs.
This squeezes their profit margins and they could end up making losses, and eventually forcing them out of the market. This in turn exacerbates the shortage of supply.
In Malaysia, the cost-of-living challenge has been in existence for years and worsened during the Covid-19 pandemic and even post-pandemic due to income loss or reduced income that could not catch up with the rising price of goods and services.
Over half a million middle-income group (M40) households have slipped into the bottom 40% (B40) category, which is equivalent to 20% of total M40 households.
There were over 405,441 households with monthly incomes below the national poverty line of RM2,208. in 2019. The number of hardcore poor households was 27,158 that year.
Rising cost of living pressures cover expenses on essentials (such as food, clothing, services and other necessities), housing affordability, healthcare and public transportation.