General:: Teh tarik and the art of inflation spotting Comments: 0 / Trackbacks: 0 First published in The New Straits Times on 10 August 2005 The recent hikes in fuel prices have made their way into the prices of everyday goods and services, from chillies to schoolbus fares. They are likely to manifest themselves later in more ways than one. There is also the spectre of higher electricity tariffs working themselves into prices. These increases in the basic components of business and consumer consumption — such as fuel and electricity — would likely be translated into the consumer price index (CPI) later on. The CPI, which incidentally is not an indicator of inflation but of price trends, is calculated periodically based on a basket of goods and services that includes food, transportation, clothing, fuel, rent, entertainment and tobacco. But the CPI tends to lag, while the costs of teh tarik and roti canai are most agile and adaptive to changing environments. Thus, I propose that teh tarik and roti canai be roped in to help us better understand inflation and prices. Do not scoff at the lowly fast foods and their ability to explain the complex laws of supply and demand, as well as give us insights into price-fixing. It is time they assume their places in the annals of the Malaysian macro-economy. It may not be Keynesian economics or Adam Smith’s treatise on capitalism, but the Teh Tarik-Roti Canai Index, or TTRCI, if I may propose it, can help us understand prices as much as they have comforted us on cold rainy nights. The TTRCI could be a leading indicator of inflationary pressure, even as the CPI lags. Many have also argued that the CPI does not tell the full story. With its national averaging approach, its validity between urban centres and urban and rural is debatable. There are contentions on the basket of goods used, too. What works in Taiping may not fly in Kuala Lumpur. For example, parking charges and rentals are higher in Kuala Lumpur, while in small towns, they are not really a big deal. And don’t get me started on intra-urban toll charges, or toilet entry fees. It is not an original idea, but the TTRCI could be a uniquely Malaysian index, free of technicalities and jargon. For nearly two decades, the Economist magazine has been coming up with its annual Big Mac index as it tries to gauge the relative value a currency has over others, based on how much a McDonald’s Big Mac costs in respective countries. This is based on the assumption that Big Macs in Kuala Lumpur, Kansas City and Kobe are basically the same — beef patties, buns, pickles, onions and ketchup. The only difference is their prices in local currencies. Burgernomics works towards giving an indication of the purchasing power parity of a currency in relation to others. For those interested, the Big Mac Index suggests that
the ringgit is about 50 per cent undervalued compared with the US dollar. Last year, the magazine introduced a Tall Latte index based on a Starbucks coffee. It functions much like the Big Mac index. In the 1970s, it had the Coca Cola index which showed a strong positive correlation between the amount of the drink consumed per capita and a country’s wealth. So, the teh tarik and roti canai index may not be too far off. It is simple; its components few. The teh tarik, concocted with condensed milk and tea dust, and the roti canai, made of flour, water and ghee, would surely fit the requirements of similar fast food indices. The curry is plain stock of dhal or fish, that requires little "tangible" input, much like someone adding extra ketchup to their Big Mac. So it is a non-factor. The other fares, either nasi lemak, mee goreng or char kway teow fail to qualify because there are too many variables; some cooks go over the top by adding chicken or beef. Furthermore, there is no standard nasi lemak. And please don’t muddy the equation with the roti telur, or murtabak or roti pisang. These just disrupt our purpose. The often forgotten element in the making of teh tarik and roti canai is, of course, fuel, which is bottled liquefied gas needed for the stove. The recent fuel hikes also hit LPG. The other is labour. Both the teh tarik and roti canai are labour intensive, especially the latter. Most restaurants are largely run by foreign workers, and the recent increase in minimum wages and fees for these expatriates could affect their pricing. Indirectly though, it will be transportation costs. With diesel having gone up by about half this year, the hike will definitely be passed on to the consumers. Now I have been watching the teh tarik more than the roti canai, and have noticed that it has gone up by between 10 sen and 20 sen a glass following the first fuel price increase this year. Apparently, last month’s hike has yet to be worked into the pricing of a glass of frothy tea — yet. As an indicator of inflationary trends, everyone should be watching their glasses of teh tarik. To make it more scientific and orderly, the Ministry of Domestic Trade and Consumer Affairs, Bank Negara and the Statistics Department could begin compiling the TTRCI, if they had not done so already.