LETTERS: As we enter the third year of the pandemic, it seems that Covid-19 is still causing uncertainty in the global economy.
After a series of mutations, the Omicron variant is leading the pack. Although the symptoms for this variant appear mild, cases are on the rise due to its transmisibility.
Invariably, this is disrupting economic recovery at a time when the world is also struggling with high inflation.
The inflation is mainly caused by the increase in energy and food prices, together with supply chain disruption, as some countries have renewed their travel and mobility restrictions.
Along with these restrictions, labour shortages have increased, which can contribute to lower economic growth. Some challenges, on the other hand, may be more temporary.
According to the International Monetary Fund's recent World Economic Outlook, while Omicron will impact the economy in the first quarter of 2022, the effect will fade in the second quarter. Hopefully, this is true.
Last month, Bank Negara Malaysia (BNM) projected that uncertainties about the emergence of new variants of concern, the risks of prolonged global supply disruption, and the risks of heightened financial market volatility as major economies adjust their monetary policies in response to the surge in inflation would continue to weigh on the global growth outlook.
From January to November last year, headline inflation averaged 2.3 per cent. As the base effect from fuel inflation fades, average headline inflation is projected to remain mild this year.
As economic activity normalises in the face of high input costs, underlying inflation, as measured by core inflation, is projected to rise. Nonetheless, core inflation is likely to remain modest, with upside risk limited by the economy and labour market slack. However, the prognosis is still influenced by global commodity price movements, as well as the danger of lengthy supply interruption.
Our main concern is that if inflation keeps its grip, the ones who suffer the most will be the people. Not just for those in the B40 category, but also those in the M40.
Among the effects of inflation are the widening income gap between the poor and the rich, which can contribute to higher rates of poverty.
In the run-up to Hari Raya, the government will impose a ceiling price to control the prices of some commodities, especially chicken, but this action can also harm entrepreneurs, especially small and medium-sized enterprises. It is because the government has been controlling the price since the past few months, which is meant to help the people but at the same time, if the ceiling price is imposed for too long, it may harm the industry, especially producers. Producers may find it difficult to sustain ceiling prices that keep decreasing for a long time. Thus, when the supply is disrupted, the pressure will be on the price.
Another question is whether raising the minimum wage is the right thing to do now. While raising the minimum wage may benefit those in need, it will be a burden for producers because it will result in higher production costs. And the costs will determine the company's long-term viability.
Another concern is that most SMEs, particularly in Sabah and Sarawak, will find it difficult to pay higher wages. Therefore we must exercise caution before raising the minimum wage.
If the company is unable to sustain itself, it will face the risk of bankruptcy, which will contribute to higher unemployment rates and lower economic growth.
Stagflation is a term used to describe this type of crisis. When stagflation occurs, the government will have a difficult time deciding which policy will be most effective in controlling the economy.
Having said that, let's hope that the prediction of inflation fading away in the second quarter comes true.
The most important thing now is that we control the spread of Omicron without having to resort to Movement Control Order, among other things. Should that happen, it will be difficult for the economy to recover and the people will suffer even more.
HERNIZA ROXANN
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times