Question

The Star today reported that Malaysia's inflation rate hit a 27-year high of 7.7% in June 2008, compared to 3.8% in May 2008. It almost doubled in a period of one month mostly due to the increase in petrol price.

This is generally speaking, bad news for most Malaysians as a high inflation rate can compound itself over the next few months and cause other side effects like increase in interest rates. If your salary does not increase by at least 8% this year, then you aren't really getting an increase in income.
By taking a stroll in Mid Valley or One Utama in the weekends though, you may not see the effect as major shopping centers are still crowded. Perhaps less crowded than before, who keeps track anyway? I do believe that most Malaysians in Klang Valley have a high level of disposable income so this group may not be affected as much as the lower income group in the early stages. However, if the high inflation continues you'll definitely feel the pinch.
Identify the type of inflation that had occurred in Malaysia as at June 2008. Draw a diagram to illustrate the type of inflation?

Answer 1

In June 2008, Malaysia experienced galloping inflation, significantly higher than moderate rates but lower than hyperinflation, likely driven by cost-push factors like petrol prices.

Step-by-step explanation:

The type of inflation that had occurred in Malaysia as at June 2008, where the inflation rate hit a 27-year high of 7.7% can be identified as galloping inflation. This level of inflation, though much lower than hyperinflation which can tear economies apart, is significantly higher than the moderate and more manageable 'creeping' inflation rates of 0% to 2% per year. The increase in petrol prices contributing to this situation suggests that it may have been partly cost-push inflation, where the rising costs of production inputs result in increased prices overall. Unfortunately, a diagram cannot be illustrated here but imagine a Demand & Supply graph where the Supply curve shifts left, indicating a decrease in supply due to higher production costs, leading to higher prices.