PETALING JAYA: The CME-BAA Macroeconomic Observatory (MEO), a joint platform promoted by the Center for Market Education (CME) and Bait Al-Amanah (BAA), has urged Bank Negara Malaysia (BNM) and policymakers to keep close watch on inflation despite projection that it will remain within 3% in 2021.
February 2021 saw the country’s headline inflation return to positive 0.1% year-on-year (yoy) after 12 months of being in the negative territory.
Center for Market Education CEO Dr Carmelo Ferlito pointed out that this was the first time the trend showed up despite being visible for input materials prices for nine months.
“While overall prices are still kept down by the economic crisis we are experiencing, four elements are pushing in the opposite direction, which means toward price increases: supply chain shocks and disruptions, temporarily extended expansive fiscal policies, quantitative easing (low interest rates) and the first signs of economic recovery; without expansive monetary and fiscal policies, prices would be lower, which means that purchasing power would be more easily restored, leading the economy toward a more sustainable path,” he said in a statement today.
On the matter, MEO outlined that input material prices always anticipate the more general inflation trend, and therefore an adequate strategy needs to be prepared to avoid the emergence of rampant consumer prices, which would compromise the sustainability of the recovery path.
Bait Al-Amanah (BAA) economist Abel Benjamin Lim elaborated that such emergent inflation pressures indicate that expansive fiscal and monetary policies always come at a cost.
“In particular, fiscal injections were made necessary by the lockdown effects, while a more targeted approach toward virus containment could have led toward an inferior need for fiscal interventions.
“It will become soon evident that we need to further intervene in order to counteract the effects created by a certain policy (fiscal stimuli) which in turn were made necessary by another policy (MCO)”.
MEO invited the government to abandon a “hole-and-patch” approach to economic problems and to implement a more holistic strategy, based on a sound trade-off analysis.
With specific reference to the emergent inflationary pressures, it suggested measures for policy makers, including to avoid further lockdown and fiscal packages combination to minimise the need for future economic support; focus on targeted approach aiming to protect vulnerable communities and setting up an “inflation observation group” to monitor, interpret and tackle future developments.
MEO also called for a shift from an aid-based policy to a more comprehensive strategy to reach a sustainable path to recovery, rather than on a path mainly led by government support and the need to revise the fiscal stimuli in place in order to understand what in this moment is really necessary and what should be abandoned, so to shift toward targeted programs.
From the monetary policy perspective, it invited BNM to remain prudent and to avoid further monetary easing.
Source: The Sun Daily
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