Capitalizing on 2015 Rising Inflation
According to many economists inflation rate is expected to remain moderate for the rest of 2014 but it is expected to rise in 2015 due to:
- Subsidy rationalisation will cause fuel prices and electricity tariff to go up.
- GST once implemented in April 2015 will caused input costs to rise.
- Globally rising material cost
The chart below shows that the CPI for the first half of 2014 is around 3% (source: Malaysia SME July 12 – July 25 issue).
The Effect of Rising Inflation on Businesses?
For GST items, the GST 6% tax will ultimately be borne by the consumers. The rising cost of living may cause consumers to spend less. For GST exempted products and services, the higher input cost can not be passed over to consumers, hence business margin will be squeezed.
What is the Government Doing to Reduce Inflation
Bank Negara has to reduce the money supply in the market. One of the way is to raise the Overnight Policy Rate (OPR) which will increase interest rates making it more costly for SME and property buyers to borrow. This will reduce the liquidity in the market and lowers the inflation rate.
These contractionary monetary policy have negative effects on economic growth. However, Bank Negara is confident that these negative impact will be minimal because of strong export growth and high employment in the country.
What Can Your Company Do?
To better prepare for the years ahead, your company needs to improve it’s efficiency and productivity to offset rising costs and avoid a profit squeeze. Companies that find more productive use of their capital, assets and labour through improvement in their business process will not only survive but will see their market share improve as unproductive and inefficient companies fold.
July 16, 2014 / /