The impact of inflation on living costs in the rural areas in Malaysia article review.
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The article is important as it highlights differences between inflation and the cost of living and presents analyses of the differences in inflation rates across various income groups across Malaysian states. The article assessed the growth in expenditure and income of households in Malaysia using data from the 2014 Households Income and Basic Amenities Survey, the 2014 Household Expenditure Survey, and disaggregated state-level CPI data.
The article defines the term inflation as measured by the change in the Consumer Price Index as the average rate of increase in the price of goods and services. Consumer Price Index(CPI) is made by assuming that there is a single basket of goods and services representing the consumption basket of all households in Malaysia. CPI takes the average increase in prices with the assumption of spending patterns across households and holding the quality and quantity of goods and services in the basket as constant. The article highlights that as the CPI shows the average prices in the economy, it offers a good measure of changes in the overall price level of goods in the economy.
In the article, the cost of living is defined as the amount of expenditure on goods and services incurred by households such as financial obligations, to maintain a specific standard of living. The cost of living is determined by household spending patterns and prices faced by households. Spending patterns are influenced by household income, family structure, demography, and residence area. When CPI masks the heterogeneity in household spending patterns and the variations in price changes of goods and services faced by households, the inflation rate is seen as an approximation of the rate of the cost of living increase. CPI is the reasonable gauge of the cost of living.
In conclusion, the article allows us to understand that the inflation rate experienced by households varies because of the differences in spending patterns and price changes. Specifically, households in the lower groups living in urbanized states experience higher inflation. At the aggregated level, on average, the increase in the cost of living has been accompanied by a commensurate increase in income.