Prices of Consumer Goods Likely to Increase Gradually

From the Star, 26 July 2012, CIMB research states that prices of consumer goods are likely to rise gradually toward the year-end. Factors that contributed to the rise included higher festive demand, supply disruptions from bad weather and costlier raw materials due to ringgit weakness. Other than that, it also mention that Government's intervention should help keep food inflation and other commodities-induced price pressures manageable, such as fuel and food subsidies. Government imposed temporary measures such as setting a ceiling price for rice when the rice prices spiked in mid-2008. Government will carefully manage inflation expectations to minimize the impact on lower-income households. Then, Government resumes its subsidy rationalization plan but it is likely to reduce the subsidies in a gradual manner.

Food crisis, everything is the market are more expensive than last time. In addition there is only limited supply of good, therefore the price get even higher. People has unlimited wants but there is only limited resources are available.  In this article, stated that price of consumer goods will increase gradually due to too much demand on goods. This is because of higher festive demand, supply disruptions from bad weather and costlier raw materials due to ringgit weakness. These are the factors that cause the change in demand and supply.

Next, change in demand also could be occurs when they are changes in the price of related goods, expected future prices, income, expected future income and credit, population and preferences. In this article, the change of demand occurs is because of expected future prices and preferences. If the expected future price of a good rises and if the good can be stored, the opportunity cost of obtaining the good for future use is lower today than it will be in the future when people expect the price higher. So people retime their purchases and they substitute over time. They buy more of the goods now before its price is expected to rise, so the demand for good today increases. For example when there is a festival, supply disruptions from bad weather and costlier raw materials due to ringgit weakness, people expect that the price of rice will rises, so they will store enough rice to stay over your festival. Therefore, current demand for rice has increase, and future demand was decrease. 

When the demand increase, the demand curve shifts rightward and quantity demanded at each price is greater. Secondly, demand depends on preferences too. Preferences determine the value that people place on each good and service. Preferences depend on such things as the weather, information, and fashion. For example, the article stated that supply disruptions from bad weather, it has shifted the preferences in rice, so the demand of rice increased. This is because when the supply disruptions from bad weather, the demand will continues to increases. Since the demand is so high, this enables the supplier to sell the good in the high price.

In the law of demand, other things remain the same, only the price is changing.  The higher the price of the goods, the smaller quantity demanded; and the lower the price of a good, the greater is the quantity demanded. But in this situation, people are demand a lot of consumer goods due to festivals, supply disruptions from bad weather and costlier raw materials due to ringgit weakness. Therefore, the demand of rice is increases before the shortage occurs since the price is low and supply is in surplus condition; the demand of rice is decreases when it is in the festival due to shortage and increase in price of rice. Besides, higher price reduce the quantity demanded also cause by substitution effect and income effect. According to the substitution effect, when the price of a good increase, other things remaining the same, and its relative price rises. Although each good is unique, it has substitutes. As the opportunity cost of a good raises, the incentive to economize on its use and switch to a substitute become stronger. For example, the price of rice rises during the festival and people change to eat noodle, which is cheaper. So when people started demand more on noodles, the quantity demanded for rice decrease during festival. While the income effect dedicate that when a price rises, other things remain same, the price relative to income. This is caused by the prices of food rise but the income of the people still remains the same.