Friday, July 21, 2017

Before We Start Talking About “Free” Tertiary Education…

…we need to handle this little problem:


  1. Why isn’t secondary education universal yet?
  2. What’s happening with the missing boys? Malaysia’s gender ratio is tilted to more boys, yet fewer of them enter secondary education.
  3. If you think this is bad, from my memory the secondary graduation numbers are even worse (I’ll post the chart if and when I find the numbers).

Thursday, July 20, 2017

Zero-Sum Productivity

Lord Adair Turner has a lovely article on the future of productivity (excerpt):

Is Productivity Growth Becoming Irrelevant?

LONDON – As the Nobel laureate economist Robert Solow noted in 1987, computers are “everywhere but in the productivity statistics.” Since then, the so-called productivity paradox has become ever more striking….

…As we get richer, measured productivity may inevitably slow, and measured GDP per capita may tell us ever less about trends in human welfare….

…Our standard mental model of productivity growth reflects the transition from agriculture to industry….

Wednesday, July 12, 2017

Effective Exchange Rate Indexes: June 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


Over the past two months, the Ringgit has continued to gain ground, posting advances across all six indices being tracked. Most of the gains were posted in May (2.06% in the case of the real broad index), with some follow through in June (0.31%). For the latter, most of the gains were against the periphery, as the narrow index posted a small loss (-0.01% for the real narrow index). The strongest gainer was the real ASEAN index, which rose 2.34% in May and a further 0.33% in June. All told, the Ringgit has now recovered nearly all of the ground lost in the aftermath of the US presidential election.

On a bilateral basis, gains were recorded against 13 out of 15 currencies tracked in May, and 10 out of 15 in June. Across both months, the Ringgit gained against every major currency except the EUR (-1.79%), with the biggest gainer being against the JPY (+3.59%). Also, for the first time since January 2017, the REER is above the NEER, signaling a (very minor) undervaluation.



  1. Indexes have been updated to June 2017
  2. CPI deflators and forecasts have been updated for May/June 2017
  3. Trade weights have been updated to 1Q2017, which entails revisions for Jan-Apr 2017

Wednesday, July 5, 2017

Seattle’s Minimum Wage Experiment

This paper caused a stir in the economics community in the past couple of weeks (abstract):

Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle
Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, Hilary Wething

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.

Friday, June 30, 2017

Current Account Confusion

This came out about a month ago, but the subject is important enough that it’s worth revisiting (excerpt):

The Malaysian economic indicator that is raising red flags

OF all the statistics trotted out to show the health of the economy, one indicator is causing some concern among economists, who said it spells trouble for every Malaysian over the long term.

The current account balance is a gauge for the state of the economy and if it goes into a deficit for an extended period, it affects everything from wages to the price of vegetables.

Malaysia’s current account balance still shows a surplus but the bad news is that it has been declining steadily from 2014.

Tuesday, May 23, 2017

Inflation Perceptions

The Guv on inflation perceptions (excerpt):

Why doesn’t inflation rate reflect cost of living? All about perception, BNM says

KUALA LUMPUR, May 19 ― Bank Negara Malaysia (BNM) suggested today that public perception of inflation tends to be higher than the actual rate, with the bias shaped by their personal experience of paying for food and transport.

This comes as the central bank announced a headline inflation rate of 4.3 per cent in the first quarter this year compared to 1.7 per cent in the previous quarter, owing to the hike in fuel pump prices and shortages of fresh fruit.

“Public perception of inflation is in fact influenced by frequently purchased price such as food. This item typically experience higher inflation.

“However household also spends on other items, such as clothing which are in fact experiencing price decline,” BNM governor Datuk Muhammad Ibrahim said in a press conference here.

This perception is also formed by spending on transport, a sector high price volatility, he said.

In comparison, Muhammad said the Consumer Price Index (CPI), or the inflation rate, is a reflection of overall price changes in economy that reflects average consumption of an average household.

I’ve been writing about this for years (latest here). BNM has also published an article in their quarterly bulletin that actually measures the degree of “misperception” (link here). The latter especially is worth a read. For a really deep look into the whole subject, buy the book!

Tuesday, May 16, 2017

Affin-Hwang Investment Forum 2017

I will be at the Affin-Hwang Investment Forum this Saturday morning for a panel discussion on the Malaysian Economic Outlook. It’s not free, but it’s open to the public. Details here.

Thursday, May 4, 2017

Effective Exchange Rate Indexes: April 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


For the first time since April last year, the MYR indexes have gained across the board. Having said that, the movement has been relatively small – about 0.22% on a nominal basis, and 0.27% on a inflation adjusted basis. The gains against ASEAN have been smaller, at 0.17% for both real and nominal indexes. The revised data for March however, also shows the MYR sustaining above the 100 pt index mark at 100.49, versus the preliminary reading of 99.85.

On a bilateral basis, the picture is more mixed, with gains recorded against 9 out of the 15 currencies in the broad basket. The biggest gain recorded was against the AUD (1.94%), continuing on from last month’s movement, with the KRW (0.88%) and HKD (0.84%) rounding out to the top-3. The biggest drops were against the JPY (-1.71%), GBP (-1.64%) and INR(-1.20%). The indexes continue to be crossed, with the NEER remaining above the REER.



  1. Indexes have been updated to April 2017
  2. CPI deflators and forecasts have been updated for March/April 2017. There was a technical change in the splicing procedure for Thailand’s CPI deflator, which resulted in some very minor changes to the historical series. This only affects the Real Broad and Real ASEAN indexes.

Tuesday, April 18, 2017

Chart of the Week: Malaysian Residential Housing Stock

The supply side of housing (number of units per quarter; log annual difference; 3Q2002-4Q2004):


In the top chart, the top dotted line is the average from 2002-2008 (about 49.2k per quarter) while the bottom dotted line is the average since (about 24.4k per quarter) . In the bottom chart, the corresponding averages are 5.7% and 2.2%.

So, a big part of the reason why house price inflation increased over the past decade or so is due to the shortfall in supply.

Technical Notes:

  1. Data from various reports published by the National Property Information Centre
  2. Note that the above data series excludes service apartments to maintain consistency (2016 NAPIC data does not include service apartments)

Tuesday, April 11, 2017

Chart of the Week: Malaysian House Price Inflation

There’s inflation, there’s food inflation, but then there’s house price inflation (quarterly index numbers; 2000=100):


Technical Notes:

  1. Inflation numbers from the Department of Statistics Malaysia
  2. Malaysia House Price Index from NAPIC

Wednesday, April 5, 2017

Effective Exchange Rate Indexes: March 2017 Update

The NEER and REER page has been updated, as has the Google Docs version.


MYR is losing out on the emerging market rally. Both indexes continued to decline, despite stability against the USD. There was a slight uptick in the Nominal Narrow Index (top 5 trading partners), but the Real Narrow Index dropped 0.26%, as inflation accelerated faster in Malaysia. The Real ASEAN index dropped the most month on month (-0.76%), but having said that, March marks the first time this particular index has dropped below 100 since June 2000.

Despite this, on a bilateral basis, MYR appears to have turned around, or at least stopped losing ground. Gains were recorded aganst 9 out of the 15 currencies in the broad basket. The nine-month losing streak against the AUD finally ended (+0.65%), with the biggest gain coming against the GBP (+1.31%). The biggest drop was against the INR (-1.65%), followed by the TWD (-0.61%) and KRW (-0.58%).

One last thing: The indexes have crossed, with the NEER now above the REER. This is largely due to inflation in Malaysia accelerating faster than our peers. Technically, if you believe this stuff, that indicates the MYR is now overvalued, though I’d reserve judgement until I get a chance to take into account nominal interest rates as well (standard UIP model).



  1. Indexes have been updated to March 2017
  2. CPI deflators and forecasts have been updated for February/March 2017

Tuesday, April 4, 2017

Chart of the Week: Core Inflation and the Impact of GST

I was struck by a graph I saw the other day, and I’ve tried to reproduce it here. This is the still relatively new Core Inflation Index from DOSM (index numbers, log annual changes; 2010=100):


The graph of the growth (inflation) of the index is truncated because that’s more or less what’s publicly available, but trust me that the longer series shows core inflation at roughly 2% for the two years prior.

This shows very, very clearly the impact of GST, and fulfills the prediction I made nearly four years ago – GST caused an upward shift in the price level, but didn’t cause inflation (as narrowly defined by economists) to rise. It was purely a price level change, and didn’t change the slope of the index. The impact appears to be a roughly 1.8% peak to trough increase in the price level, in line with the MOF/BNM forecast.

Core inflation is currently appearing to accelerate, but that can’t be ascribed to the imposition of GST, which after all happened exactly two years ago.

Technical Notes:

Data from various Consumer Price Inflation reports from the Department of Statistics. NOTE: DOSM’s core inflation index excludes both highly volatile prices (certain seasonal foods such as vegetables) as well as petrol prices (which have been very volatile since the float in 2014). It also excludes prices of goods that are “administered” i.e. those whose prices are either fixed by the government (e.g. rice), or move due to changes in government tax policies (e.g. tobacco and alcohol). Therefore a presents a truer picture of underlying price pressures in the economy. Note that this doesn’t mean stuff doesn’t get more expensive, it just takes away the volatility in inflation, which makes it more useful for policymakers such as BNM.