Inflation and income growth have the opposite effect on the cost of living, which is a certain amount of income a family spends on maintaining a particular standard of living.
Inflation increases living costs as households have to spend more to maintain their lifestyle.
Of course, the cost of living will vary among households depending on their income. But, inflation impacts all, eroding real incomes, albeit in differing measures.
Inflation in Malaysia hovers around three per cent. It is a far cry from the dizzying rates of over eight per cent in the European Union, United Kingdom and the United States. Notwithstanding, the price spike is worrying.
With global inflation, Malaysia's prices are bound to go up.
Many factors account for soaring global prices. The loose monetary policy following the pandemic has put more money into consumers' hands.
The pent-up demand that is being unleashed now goes against shortages caused by fractured supply chains.
Lockdowns, especially in China, and protectionist policies of the West have caused supply disruptions.
Energy prices had previously been rising gradually, only to rise dramatically after Russia's invasion of Ukraine.
The consequent partial sanction on Russian oil exports, coupled with the Organisation of the Petroleum Exporting Countries's lack of capacity to increase production beyond 400,000 barrels per day, has resulted in surging fuel costs.
Although Malaysia's RON95 has been capped at RM2.05, it is still 20 per cent higher than the level during the height of the pandemic.
Global food prices are spiralling too. Russia and Ukraine export more than a quarter of the world's wheat and 70 per cent of sunflower oil. These commodities go into food production.
Given the naval blockade and damage to its railroads, Ukraine's grain exports are a trickle.
The two countries are also key suppliers of barley and corn. Their disrupted supplies have also caused animal-feed prices to sky-rocket.
But, for price controls, these commodities that go into animal-feed manufacture, would have occasioned a massive escalation of meat, chicken and egg prices in the country.
Global inflation has swelled manufacturing costs in the West. With about two-thirds of intermediate goods for local manufactures imported, Malaysia suffers from imported inflation.
With no end to the war, Malaysia continues to be exposed to the ravages of global inflation.
Here are five strategies to cope with the rising cost of living.
FIRST, belts must tighten in response to rising prices.
Eighty per cent of food items have become pricier.
Indeed, food prices in April were four per cent more expensive than the year before.
As rising prices stretch people's budgets, a fall in living standards for the coming months looms over the Bottom 40 per cent income households. These families must start buying fewer items to manage their cash.
They will feel the greatest pain. They spend 35 per cent of their income on food compared with 23 per cent by the top 20 per cent income households.
SECOND, the government should introduce the planned targeted fuel subsidies quickly.
We can then expect greater subsidies for the B40, as the government redirects subsidies that currently go to the richer class.
THIRD, although these are longer-term solutions, addressing imported inflation requires diversifying and localising the supply chain.
Greater investments in the agro-food sector are also a priority. The consequent increased food production should stem escalating food prices.
FOURTH, the pandemic has brought about wage stagnation or weak income growth.
Against inflation, lower-income households face difficulties in maintaining their standard of living.
The government will have to funnel support towards them.
While minimum wages help a little, jobs that allow for productivity increases should ensure incomes grow in tandem.
FIFTH, although it is easier said than done, businesses should seek out ways to optimise costs amid imported inflation.
This should ensure sustainability even as it contributes to maintaining the cost of living.
Addressing the cost-of-living issue requires a policy assault on two fronts — income growth and inflation suppression.
Strategies to stabilise prices and boost incomes should preserve households' standard of living and perhaps improve it further in the future.
The writer is the AIMST University's Vice-Chancellor
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times