Malaysia to Introduce New Cost of Living Indicator by November 2024
In a significant move aimed at providing a more accurate reflection of the financial pressures faced by households, the Malaysian government announced a new indicator to measure the cost of living, set to be introduced by November 2024. This new indicator will complement the existing Consumer Price Index (CPI), which primarily measures inflation.
Why a New Indicator?
The CPI has traditionally been used to measure the changes in prices of goods and services, influenced by supply and demand. However, it falls short in capturing the broader cost of living experienced by households. The new indicator addresses this gap by providing a comprehensive overview of the total expenditure required by households to meet the necessities of life.
Key Differences and New Features
According to Prime Minister Datuk Seri Anwar Ibrahim’s written parliamentary reply, the new indicator will collectively provide an overview of household expenditure, covering essential items such as:
- Food and beverages
- Clothing
- Rental/mortgages
- Fuel
- Public transport fares
- Education fees
- Fees for mobile phones and other communication devices
In addition to these categories, the new indicator will consider factors such as:
- Household size
- Source of income
- Spending patterns
- Lifestyles
- Demographics (gender, age, ethnicity, and disability)
This approach ensures that the cost of living is measured in a way that reflects the diverse experiences of Malaysian households.
How Will It Work?
The new index will be based on the Poverty Line Income Modified developed by the International Labour Organisation in 2021. The calculation will consider household expenditure across 12 groups of goods and services:
- Food and non-alcoholic beverages
- Clothes and shoes
- Housing, water, electricity, gas, and fuel
- Decoration, hardware, and household maintenance
- Health
- Transportation
- Information and communication
- Recreation, sports, and culture
- Educational services
- Restaurant and accommodation services
- Insurance and financial services
- Self-care, social protection, and various goods and services
Food expenditure will be calculated based on optimal intake according to the Nutrient Intake Recommendation, the Malaysian Diet Guide 2020, and the Food Pyramid 2020. This comprehensive approach includes ready-cooked meals bought for the household.
Historical Context and Future Implications
The idea for a new cost of living index was first proposed during the Pakatan Harapan administration in 2018. In March 2019, then-finance minister Lim Guan Eng emphasized the need for an index that accurately measures the cost of living to help employers determine appropriate salary increases. Former domestic trade and consumer affairs minister Datuk Seri Saifuddin Nasution Ismail also highlighted the inadequacies of the CPI in reflecting real-life financial pressures on households.
Conclusion
The introduction of the new cost of living indicator marks a significant step towards a more accurate and comprehensive measurement of household expenses in Malaysia. By taking into account various factors such as location, household size, and spending patterns, this new index aims to provide a clearer picture of the financial challenges faced by Malaysian families. As the government continues to refine and implement this indicator, it is expected to play a crucial role in shaping policies that better address the cost of living and economic well-being of the population.
