Page 244 - Contributed Paper Session (CPS) - Volume 7

CPS2075 Wan Siti Zaleha W. Z. et al.

Relationship of inflation with imports and
exports in Malaysia
Wan Siti Zaleha Wan Zakaria, Siti Nuraini Rusli, Nur Amirah Daud
Department of Statistics, Malaysia

Abstract
Inflation refers to a common raise in prices which lead to drop in the
purchasing value of money. The most commonly used indicators as a proxy to
inflation are the Consumer Price Index (CPI), Wholesale Price Index (WPI) and
the Gross Domestic Product (GDP) deflator. This paper aims to examine the
relationship between CPI and imports and exports of goods in Malaysia. The
study is motivated by demand-pull and cost-push theory of inflation using
monthly time series data from the Department of Statistics, Malaysia (DOSM)
for the 336 months between January 1990 and December 2017. This study
applies unit root test to check the stationarity of variables of time series; co-
integration test to examine possible correlations among variables in the long
term; and the causality test to check causality between the pair of variables in
a time series. By employing co-integration technique, it is observed that the
long-run relationship does not exist between CPI & imports and CPI & exports.
However, causality analysis suggests the existence of short-run relationship
between CPI & imports and CPI & exports. The CPI had caused the increase in
imports and the exports had caused the increase in CPI.

Keywords
Machine Learning; Panel Survey; Nonresponse; Feature Selection; Ensemble
Methods

1. Introduction
Inflation refers to a general increases in prices which lead to reduction in
the purchasing power. Inflation can be measured through CPI or WPI or GDP
deflator. Inflation measures the increase in the cost of living in a country as
when prices go up, monetary value declines and lead consumers to spend less
on goods and services. Inflation mainly due to either demand or supply or
both factors. Demand side factors result in demand-pull inflation and supply
side factors lead to cost-push inflation.
Demand-pull theory implies that the inflation happens when aggregate
demand for goods and services increases so much leading to increased
pressure on limited resources. When demand surfeits supply, prices of goods
and services will go up and create inflation. Among the reasons of demand-
pull inflation are depreciation of the exchange rate; higher demand from a

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