Lower Income Group Hit Hardest By Inflation

Lower Income Group Hit Hardest By Inflation

Like it or not, inflation does not affect everybody in the same manner and according to the Bank Negara Malaysia (BNM) Annual Report 2015, those from the lower income group across the nation experienced a higher inflationary rate compared to their middle- and high-income counterparts in 2015.

Households in the bottom 20% of the income group strata experienced inflation rates that were 0.12% to 1.10% higher than households in the top 20%, BNM reported.

The central bank also revealed that the lower income groups spend a larger share of their expenditure on food, and in doing so, experienced higher inflationary rates due to higher food inflation of 3.6% in 2015, compared to 3.3% in 2014.

“The lower income groups also benefitted less from the decline in domestic fuel prices during the year, given the lower share of expenditure on fuel.

“Thus, the lower income households living in highly urbanised states tend to experience the largest increase in their cost of living,” it said in the report.

Also commonly referred to as the Bottom 40 (B40), the lower income group comprises an estimated 11.7 million or 40% of Malaysian citizens who earn a monthly household income of below RM2,500 a month.

The change in cost of living was measured using actual household expenditure data from the 2014 Household Expenditure Survey.

Based on this analysis, aggregate household expenditure, including to pay off financial obligations like loan repayments, rose at a compounded annual growth rate of 8.5% from 2010 to 2014.

Consequently, these B40 households, which only have a relatively small amount of savings, are vulnerable to both income and price shocks.

About 28% of B40 households do not save on a monthly basis, while 11% of them save RM100 or less a month.

Image source: mca.org.my


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