Have you ever stared at your grocery bill and wondered, “Why does everything feel so expensive?” even though Bank Negara Malaysia (BNM) keeps saying inflation is low? If you have, you’re not imagining it - and you’re definitely not alone.
BNM sheds light on a stubborn reality: the official inflation rate and your lived experience often tell very different stories.
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Inflation vs Cost of Living: What’s the Real Difference?
Most Malaysians hear the word inflation and immediately think about rising prices - but inflation is simply the rate of price change over time. It is measured using the Consumer Price Index (CPI), a fixed basket of goods and services tracked by the Department of Statistics.
So when BNM reports a 1.3% inflation rate in October 2025, it doesn’t mean prices are dropping - only that they are rising more slowly than before.
Cost of living, however, is a broader and more personal concept. It covers the total amount of money you need to maintain your lifestyle. Yes, inflation plays a role, but it is only half the story.
If Inflation Is Low, Why Do I Feel Poorer?
Here’s the missing piece: income growth.
Even low inflation compounds over the years. If wages don’t rise fast enough to match those accumulated price increases, your purchasing power shrinks. That’s when you feel like your salary “cannot tahan” anymore.
This effect is especially painful for the B40 and M40, whose wages tend to grow much slower than rising essentials. Meanwhile, the T20 group is cushioned by higher and more flexible income streams.
So, even with “low inflation”, many Malaysians are caught in what feels like an endless financial squeeze.
Why Does the Official Inflation Rate Feel Wrong?
BNM acknowledges that people don’t experience inflation the way the CPI measures it. That’s because of two psychological biases:
Frequency bias: We notice price hikes in daily essentials (food, groceries, petrol) far more than items we buy occasionally.
Memory bias: We remember price increases clearly but forget price drops almost immediately.
To better reflect what people actually feel, BNM uses two alternative indices:
Everyday Price Index (EPI) - Focuses only on frequently purchased items.
Perceived Price Index (PePI) - Tracks only price increases.
The contrast can be shocking. In September 2025:
CPI: 1.5%
EPI: 0.9%
PePI: 5.5%
That means Malaysians felt inflation more than three times higher than what official statistics showed - no wonder the public feels squeezed.
So What’s Being Done About It?
BNM and the government say easing the cost of living requires a three-pronged approach:
1. Managing Prices
BNM adjusts monetary policy - especially the Overnight Policy Rate (OPR) - to stabilise inflation by influencing spending and borrowing behaviour.
2. Targeted Aid
The government provides fiscal support for vulnerable groups:
Schemes like STR (Sumbangan Tunai Rahmah) and SARA (Sumbangan Asas Rahmah) are designed to give temporary relief as prices rise.
3. Raising Incomes
This is the most important long-term solution.
Malaysia must push structural economic reforms, raise productivity, encourage investments, and create higher-paying jobs so that wages grow sustainably and fairly.
The Bottom Line
Your wallet feels lighter not because official numbers are lying - but because what you experience daily is different from what CPI measures. When salaries stagnate against years of cumulative price increases, even low inflation becomes a heavy burden.
Understanding this difference is insightful, but far more important is ensuring Malaysia moves toward a future where income growth finally catches up with the real cost of living - not just on paper, but in the wallets of everyday Malaysians.
By: Kpost
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