KUALA LUMPUR, Dec 4 — Have you ever looked at your grocery bill and wondered why everything feels so expensive, even when official data shows that Malaysia's inflation is low?
If so, you are not alone.
Here is a breakdown from Bank Negara Malaysia (BNM) on the difference between inflation and the cost of living, why your personal experience might not match the official numbers, and what can be done about it.
This is based on a recent BNM workshop for the media, and other BNM guides over the years.
First, what's the difference between inflation and cost of living?
Inflation is the rate of price change over time. It is measured by the Department of Statistics Malaysia's Consumer Price Index (CPI), which tracks the average price increase of a fixed basket of goods and services.
A low inflation rate, like the latest 1.3 per cent in October 2025 when compared against October 2024, means prices are still rising, just at a slower pace.
The cost of living, on the other hand, is the amount of money you need to maintain a certain standard of living.
So, while inflation is a major factor, it is only half the story.
Why do I feel poorer even with low inflation?
The other half of the story is your income. If the prices of goods and services are rising faster than your salary, your purchasing power — how much you can actually afford — decreases.
So, even if inflation is low, if your income has not kept up with the accumulated price increases over several years, you will feel the pinch.
This pressure is felt most acutely by the B40 and M40 groups, whose incomes often lag further behind rising costs compared to the T20 group.
Why does the official inflation rate feel wrong?
Your perception of inflation is often affected by two psychological biases:
- Frequency bias: You notice the price changes of things you buy often, like food and petrol, more than things you buy rarely, like a new TV.
- Memory bias: You tend to remember prices that have gone up far more vividly than prices that have gone down or stayed the same.
To account for this, BNM uses other measures.
The Everyday Price Index (EPI), focuses only on frequently purchased items to measure frequency bias; sometimes, the EPI can be higher than the CPI if daily essentials get more expensive faster than goods you rarely buy.
The Perceived Price Index (PePI) takes this a step further by only including price increases to measure memory bias.
In September 2025, for example, while the official CPI was 1.5 per cent and the EPI was 0.9 per cent, the PePI was much higher at 5.5 per cent, showing that the public's feeling of inflation was over three times the official rate.
So, what is being done about it?
According to BNM, addressing the cost of living needs a three-pronged approach:
- Managing prices: The central bank uses monetary policy, like adjusting the Overnight Policy Rate (OPR), to influence spending and saving habits to keep inflation stable.
- Providing targeted aid: The government uses fiscal policy, such as targeted cash aid and subsidies for essential goods, to provide short-term relief to the most vulnerable groups. Think of Sumbangan Asas Rahmah (Sara) and Sumbangan Tunai Rahmah (STR).
- Raising incomes: For the long term, the focus is on structural reforms to boost the economy, create higher-paying jobs, and ensure that wages grow sustainably and fairly for all Malaysians.
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