Inflation may come back soon (or it has never left?)

The latest data of CONSUMER PRICE INDEX, CPI (pct,y/y), released by Malaysia Central Bank (BNM) last week:

NOV : 5.7
OCT : 7.6
SEP  : 8.2
AUG : 8.5
JUL : 8.5
JUN : 7.7
MAY : 3.8
APR : 3.0
MAR : 2.8
FEB : 2.7
JAN : 2.3

Although we see CPI declines consecutive for 3 months since Sep, reading of Nov 5.7 is still considered an indication of high level of inflation compared to the current fixed deposit interest rate (3%-3.2% p.a.). Savers are still losers. Malaysian government has slashed petrol and diesel prices five times since petrol retail prices hit a high of RM2.70 per litre in June. But lower petrol and diesel prices do not help much in easing the threat of inflation to the country.

On the other hand, we all knew that more US rate cuts were on the way. What we didn’t know until last Tuesday evening was that the Federal Reserve would re-write its 75-year old rulebook, and slash official interest rates virtually to zero.

Now its ammo has been used up, America’s central bank only has one real option left – printing money. That’s a huge gamble for the world economy – an invitation to global HYPERINFLATION!

We are afraid that inflation is already on its way back… perhaps it has never left.

Inflation is a friend of property investors – when the price of everything is rising, so are rental income and property value. However, it is an enemy to all home buyers because they don’t earn income from their houses.

To home buyers, we suggest to take the lowest floating rate package now with minimum lock-in period, and to refinance to fixed rate package when the interest rate starts to bounce again, which will happen when governement reckons the coming back of inflation.

Christmas is around the corner. If you have yet to plan how to celebrate Christmas this year, read “Christmas On A Budget” from KCLau’s Money Tips for useful tips.

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

6 Comments

  • KCLau

    Reply Reply December 22, 2008

    Hi KL,

    I don’t really “catch” the meaning of “it is an enemy to all home buyers because they don’t earn income from their houses.”

    Would you explain more details about it? Or am I too dumb to understand?

    Thanks for featuring my blog so often 🙂

    • ongkl

      Reply Reply December 22, 2008

      Hi, KC, thanks for all your support and comments to this blog.

      Home buyers buy houses for their own stay. Whenever inflation strikes, cost of living becomes higher and higher, including the price of a new house, monthly installment of new housing loan, maintenance of house, utililty and other household expenses.

      Unlike property investors who benefit from higher rental income and property prices due to inflation, home buyers have to rely on their existing sources of income to cover the increased home-related expenses.

  • 雷門

    Reply Reply December 23, 2008

    How do you think about Iskandar Malaysia project? Does it really benefit the property investor?

    • ongkl

      Reply Reply December 23, 2008

      In his latest comment on remarks made by Singapore PM Lee Hsien Leong that the republic was not competing with Johor especially with Iskandar Malaysia, Johor Mentri Besar Abdul Ghani claimed that the special economic corridor had attracted RM40bil in investments since its launch in November 2006.

      If everything portrayed by the government about Iskandar Malaysia is true, it definitely benefits almost everyone in JB including property investors there. However, in the market we found more speculations rather than concrete confidence from investors. For example, price of land plots along the second link has increased tremendeously (>80%) as a result of speculators’ operation. This has also invited criticism from former Malaysia PM Maharthir because without the support from true economic activities, everything looking good now will not sustain, and eventually someone will have to pay the bill – most likely the locals will lose their ownerships of agricultural land and tax payers will have to repay additional natioanal debts incurred by unnecessary infrastructure projects.

      Investors are realistic players while speculators are gamblers.

      Cheers

  • Raymond

    Reply Reply December 24, 2008

    I see that supply > demand in JB property market due to many housing development projects, but price of properties never go down.

    What is the reason behind this?

    • ongkl

      Reply Reply December 24, 2008

      Property price of new developments may not easily go down as developers have to meet their break even points. Unless they are really in deep trouble. So we see a lag effect compared to resale/sub-sale market.

      Certain resale properties in JB like high-end semi-D, condominium, bungalow and land are mostly bought by cash-rich buyers such as wealthy Malaysians and foreigners (Indonesians and Singaporeans). They have the holding power and normally do not like to let people take advantage from their properties when the market is bad. Sometime we can even face difficulty to find such properties in bad time.

      Properties that reflect instantly the effect of supply and demand are those bought by middle and low classes in the resale market.

      Cheers

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