The economist expectation on inflation in Malaysia

The economist medical prognosis on ostentation in MalaysiaInflation in Malaysia is judge to remain low for the rest of this year overdue to weak exports and softer domestic hold. Malaysia is now experienced a deflationary pressure. Deflation is defined as a persistent fall in the average level of prices in the economy.In this case Malaysia is categorised as having a bad deflation. Bad deflation finds it source in the demand side of the economy. As the export trade and softer domestic demand is low due to lower anele and commodity prices, this exit cause aggregate demand (AD) to decrease. A fall in AD impart result in a decrease in the price level and a decrease in historical output. Please refer to the diagram below. diagram 1 Decrease in AD due to weak exports and softer domestic demand in Malaysia.Diagram 1 above illustrates the bad deflation situation. From the diagram above, we flowerpot see that AD shift to the left to AD1. A fall in the aggregate demand (AD) will resu lt in a decrease in the price level from P1 to P2, and a decrease in real output from Y1 to Y2 .When there is less demand, businesses makes less profit or even loss. The producers need to caterpillar tread garbage down their cost of production by cutting down supply and lay off worker. on that pointfore, the level of unemployment will rise. This will affect economy badly.If more(prenominal) people are unemployed, their real income is low, thus their buy power will decrease, there will be even less consumption. This is proven from the article where it disk operating system that consumer price index1(CPI) in Malaysia dropped from more than 8% inflation in 2008 to two consecutive months to 2.4% in July 2009. This will lower the GDP (growth domestic product) level.Furthermore, the amount of investment from investor rely highly on their foresight of the economy climate for the future, if the consumer demand showing no improvement in the future, business confidence is plausibly to be low. Investor will refuse to invest in our body politic. This has negative implication for future economic growth.Deflation brought many an(prenominal) impact on the producers, consumers and also the economy itself. In the situation of bad deflation, producer will confront with the risk generating low profit. This is because when the demand is low, it causes the price of product also low, they would not gain much profit and to ensure them not too loss too much, they will cut down the supply to add the price back. They also tend to decrease the number of workers to save their cost of production.The consequences, of the producers actions are faced by consumers. When they are fired, their real income will remain low, hence, could not buy good as much as they want. Its indicates their purchasing power is low. And this illustrates the standard of living also at low level.Diagram 2 A decrease in AD and real output.These situations affect the economy badly. As we can see, in the D iagram 2, when the demand decreases from AD to AD1, price will also decrease (from P1 to P2) resulted in decreasing amount of real output from Y1 to Y2. To survive, producers tend to lay out workers to cut down cost of production. The unemployment level will sum up. In the economy it is not good to have high level of unemployment as it will lower down the societys standard of living. Economic growth will decrease and economic development will be halted.From the description above, Malaysia should take immediate action to overcome bad deflation problems. Government could take actions such as by increasing the demand from consumer and increasing the aggregate supply.To increase AD, producers could promote their product by advertising or by giving a discount. The producer also could increase their workers income, as it can make them more motivated to works and produce high quality of product that meet the consumers taste. In a way, this could increase the aggregate supply (AS) as well . Government also could change to expansionary fiscal policy where it could encourage greater consumption by lowering income taxes to increase disposal income. Another way is by lowering the unified tax so that firm could enjoy higher after-tax profit. The chances of them to lay off worker will be decrease. Therefore, the rate of unemployment will decrease. This is the best solution after all.(750 WORDS)ABSTRACTThis article is about the economist expectation on inflation in Malaysia. They expected that inflation in Malaysia to remain low. There are several(prenominal) factors that contribute to this condition. First, it is due to weak exports and softer domestic demand because of lower oil and commodity prices. This condition is called deflation. There are two category of deflation good deflation and bad deflation. As mavin of the Asia country, Malaysia experienced bad deflation. A fall in aggregate demand will result in a decrease in price level and a decrease in real output. If real output decreases, then it is anticipate that the level of unemployment will rise, as firms will need fewer workers if there is less demand. Asian country has come out with several ways to overcome this problem. However due to some weaknesses. Only one method, which is investment liberalisation, would be the effective method in order to revitalized Malaysias economy and helps increasing the inflation rate.