Causes and effects of inflation in Malaysia

Abstract

Any analysis of the current inflationary situation in Malaysia must consider both the causes and effects of inflation. On the basis of events in the past couple of years, it appears reasonable to postulate that inflation in Malaysia was caused by rising import prices and excess aggregate demand which in turn led to speculative activity, hoarding and profiteering. Rising import prices, or imported infla- tion, is exogenous to the Malaysian economy in so far as its origins is external, rather than domestic. It is difficult to determine which of the various causes is the more dominant although it is generally believed that inflation once started, often generates inflationary expections that can cause the inflation to proceed for some time even after the initial causes had been removed.