Introduction

Inflation is an increase in general prices in an economy. When inflation occurs, each ringgit of income will buy fewer goods and services than before. It causes a reduction in the value of money (McConnell, et al., 2012). But this does not need to have an immediate effect on the consumers’ purchasing power. Purchasing power only declines if the people’s income increases less rapidly than prices. The main measure of inflation is the Consumer Price Index (CPI). The government uses this index to report inflation rates each month and each year. There are two types of inflation, demand-pull inflation and cost-push inflation (McConnell, et al., 2012). Inflation was chosen as our topic because it reflects on everybody’s daily lives. It tells people whether the price of goods has gone up or down. It also tells about the purchasing power each ringgit has now compared to the past.

According to an article on the The Star Newspaper, published on 17th April 2013, Malaysia’s inflation rate rose by 1.6% in March 2013 from a year ago due to higher costs of food and non-alcoholic beverages. The Department of Statistics Malaysia reported that the CPI for March rose to 106.2 from 104.5 a year ago. The increase was in line with consensus. “The index for food and non-alcoholic beverages, and non-food products for March 2013 showed increases of 3.3% and 1.0% respectively as compared to the same month in 2012,” it said (Star Publication (M) Bhd., 2013). 

With the issues stated above, throughout this report, the aim is to understand why inflation occurs, what are the factors that are affecting inflation rates, how is inflation rate calculated, what are the effects of inflation, what is the government doing to control the effects of inflation, and how inflation affects consumers’ purchasing behaviour. 

Conducting a survey was not easy nor was it hard. The first limitation was about the people who were going to be our candidates for the survey. They were mostly students and they may not be very clear of the questions in the questionnaires. So the questionnaires were well structured, making it simple to understand while maintaining its complexity to ensure that the desired data was obtained. The second limitation was the reliability of the data gathered. Like most surveys, the results may not be accurate. The candidates may not be very truthful when answering the questionnaires. Despite the limitations, sufficient data was obtained from the survey which helped in completing this report.