INTODUCTION

Price is something that can give benefit to everyone while it also will give an adverse impact
to unable everyone to control and manage price changes. As Forman and Hunt (2005) said”
pricing strategy should occupy a crucial place in strategy planning due its direct impact on
the company’s revenue”1. From the statement, planning and strategic is important to manage
price changes for an able to increase revenue from year to year. Unstable price will influence
economic situation, for example when price increase from price level, it may caused
inflation.” Inflation is defined as a sustained increase in the general level of prices for goods
and services”2. The statement means price increase at high level then demand for the goods
and services will reduce because people unable to buy the goods and services as usual.

Most an affected with price changes is share price and consumer price index, it’s because of
all those things related with demand. There are having two relationships between price and
demand. Firstly, positive relationship which is higher price - higher demand these kind
related with necessity goods like oil, sugar and rice. Secondly, negative relationship, higher
price - lower demand this is for luxury goods like car, house and jewellery. The relationship
will give impact to economy, politic and social. “Since June 1981, when Volker started to
lower interest rates from 20% as high inflation rates started to fall, the absolute level of CPI
rose 142% to the high in July '08 (90.5 to 217)” 3. This statement elaborates how the inflation
occurs, when price level is increase while interest rate will decrease. So, government have to
increase interest rate due to reduce inflow and outflow of money from country. Government
want people pull their money for country to resolve the economy problems. From that, people
will increase their saving and involve in an investment.

Issues that can be come out from this thesis is “the connection price performance of
consumer product and stock market”. Price of consumer product also known as consumer
price index and this issue very sensitive with up and down of stock price index or KLCI.
Consumer price index is price changes over time for consumer products. Other than that
consumer price index also can define as “a measure of the average change over time in the
prices paid by urban consumers for a market of consumer goods and services” by United
States Bureau of Labor Statistics4. It means, average price will be paid by urban consumers

1
Forman & hunt (Journal of Business & Industrial Marketing 26/1 (2011) 26–33q Emerald
Group Publishing
Limited [ISSN 0885-8624] )
2
http://www.investopedia.com/university/inflation/inflation1.asp
3
http://www.minyanville.com/businessmarkets/articles/deflation-inflation-economy-
quantitative-easing-
deflation/8/9/2010/id/29518
4
"Consumer Price Index - Frequently Asked Questions (FAQs)". Bureau of Labor
Statistics. Accessed September
10, 2010. http://www.bls.gov/cpi/cpifaq.htm
over time, urban consumer are chosen for market of consumer goods and services because
activity purchasing at urban area is more actively rather than rural area.
Kuala Lumpur Composite Index (KLCI) using as a based price level to study the connection
price performance of consumer product with stock market. “The Kuala Lumpur Composite
Index (KLCI) is a capitalization-weighted stock market index”5. This is average price index
for all company listed in Malaysia main market. It establish on 1986 and nowadays popularly
known as FTSE Bursa Malaysia KLCI. Nowadays they already have 30 largest company
listed in Malaysian main market and the company also need to fulfil the requirement of the
FTSE Bursa Malaysia Index Ground Rules.

1.1 OBJECTIVES OF THE STUDY

The purpose of this study is to identify whether price performance of consumer products
have connection with stock market (KLCI) in short run or long run relationship. As we
know, the price level are always fluctuated whether it will increase or decrease over the
time.

Other than that we can identify the effect of price performance of consumer product with
stock market. The independent variable for this study is stock market (KLCI) when price
index of KLCI will change to increase or decrease of price level automatically price
performance of consumer product also will dramatically change because price of
consumer products are dependent variables. In addition, price level of consumer product
are depends on KLCI.

Lastly, we want to know which relationship is better for price performance whether in
short run or long run relationship. Sometimes, there are have some price are better in
short run or long run relationship. It is because not all performance will come out with the
same result. So, every price of consumer products have their own effect and result.

5
http://en.wikipedia.org/wiki/Kuala_Lumpur_Composite_Index
 1.2 SIGNIFICANCE OF THE STUDY

Firstly economy, price changes will give an impact to the economy whether it became more
an advances or falling down. For example when price increase at higher level it shows that
our economy are not in good situation and government need to find other alternative to
recover the economy problems. “At July 2008, the inflation in Malaysia also happens due to
the increase of the government servant salary that increases the power purchase of the most
population in the country”6. It is because when salary an increase and demand for consumer
product also increase, supplier of consumer product will takes an advantage to increase price
of consumer product to gain more profitability from the situation and it make value of money
will decrease and inflation are occur. So, we can conclude, economy very sensitive
relationship with price performance and from this study

6
http://www.scribd.com/doc/25322184/Malaysia-Current-Inflation-Situation