Picatho's causeries

The government is determined to bring down inflation as there appears to be a growing discontent about inflation. I am sure most of the Malaysians especially those who are poor are gnashing their teeth with bitch over the depreciation of their ringgit to spend.

"The government was aware of the situation and had made immediate allocations worth billions of riggit to ensure that Malaysians were not burdened by inflation." PM Pak Lah said when delivering the Umno president's message yesterday.

The purport of what he has said is that he will continue using allocations most probably be siphoned from other sectors' allocations to fight for the inflation. I see this as an "apong cooking" business deriding the effort of using only 3 covers to look after 10 pans of 'apong' in cooking. Apparently there is a risk of making some 'apongs' to be spoilt.

Most people know that the best medicine for curing inflation is the form of "inflation targeting" which says that whenever price growth exceeds a target level, interest rates should be raised.

Like China, amid a major wave of international grain price hikes, it has managed to maintain stable domestic prices. Why? Because China's interest rate is keeping pace with inflation.

China had raised its interest rate 10 times in 2007 and 3 times during the early part of 2008. Today their central bank announced again that it would raise their 4th reserve requirement ratio for commercial banks by 0.5 percentage point to curb the rising inflation.

Here in Malaysia, economy has deteriorated sharply in recent years and wages are impossible to keep pace with inflation. Subsidies shall be evanesce under tight government spending.

The crude recipe for this situation is abstention. When interest rate is raised, people tend to spend less and save more, thus making the market deflation becomes an adversary to inflation.