Bottlenecks And Labour Shortage Blamed For High Food Inflation

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The prices of food has risen in the past few months thanks to disruptions in the global supply chain and labour shortage.PETALING JAYA: The continued rise in the inflation rate in Malaysia has been attributed to bottlenecks in the supply chain and a shortage of labour.
The inflation rate has risen from 2.2% in April to 2.8% in June, according to data from Trading Economics, which tracks macroeconomic statistics in markets around the world.
In fact, Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid has already pencilled in the rise in inflation given the upward trend in the consumer price index (CPI) of several items.
He noted that the CPI for food and non-alcoholic beverages has risen from 5.2% in May to 6.1% in June while that for transport is up from 3.9% in May to 5.4% in June.
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Afzanizam said it was therefore not a surprise that the CPI in Malaysia had risen 3.4% year-on-year (y-o-y) in June 2022.
China’s zero-Covid strategy has disrupted supply chains around the world as factories and businesses suspend operations.
In Malaysia, the shortage of labour in the plantation sector has left millions of ringgit worth of palm oil fruits unpicked. A dispute in the supply of labour from Indonesia between Putrajaya and Jakarta is yet to be resolved.
MIDF Research noted in a report last Friday that in June core inflation rose 3% y-o-y from 2.4% y-o-y the previous month.
Afzanizam pointed out to FMT Business that the bottlenecks in the supply chain as well as the labour crunch could affect the efficiency and productivity of the economy.
“However, there is no quick fix as this is a multi-dimensional problem” he said.
He said Bank Negara Malaysia (BNM) had little choice but to raise the overnight policy rate (OPR) to clamp down on demand-pulled inflation. “Otherwise, it would lead to pressure on aggregate demand, leading to a further (rise in) inflation,” he said.
Afzanizam said there is also a need to watch out for unscrupulous practices such as hoarding, profiteering and price manipulation that can exacerbate the price pressures. “Therefore, it requires multiple angles and better coordination in order to solve this problem,” he added.
Sedek Jantan, head of wealth research and advisory at UOB Kay Hian, said that at 3.4%, the CPI had likely reached its peak.
He expects the rate to end the year at about 3% although food inflation will likely remain on the high side.
“This is driven by a drop in oil prices,” he told FMT Business. The price of Brent crude has been easing from its peak of more than US$120 per barrel in June.
A build-up of pressure from growing fears of a global recession and supply side threats have led S&P Global Platts Analytics to forecast a drop in Brent crude price to US$90 per barrel in 2023 from an average of US$106 in 2022.’
The Brent crude was trading at about US$102 today, down from its close of US$103.20 on Friday.
Simultaneously, Sedek also pointed out the moderation in freight cost would also alleviate Malaysia’s inflationary pressure.
In its report, MIDF forecast a moderate increase in Malaysia’s domestic food inflation in the second half of the year resulting from the reduction in subsidy support for several items and a slight drop in related commodity prices.
As a result, it revised its forecast on food inflation to 4.5% from 3.5% at the start of the year.
On the global front, food inflation reached a four-month low of 23.1% in June, according to the UN Food and Agriculture Organisation.
“On a different note, the slight downward trend in global commodity prices may ease Malaysia’s food inflation pressure in H2 2022,” it said.
“As for fuel subsidy, we believe the government will maintain the current mechanism at least until the end of this year. With domestic demand firming up, we forecast headline CPI to average at 2.8% for 2022,” the report added. - FMT

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