Exploring the value in variations of the Relative Income Price (RIP) for calculating cigarette affordability: An illustration using Malaysia

The relationships between cigarette affordability, consumer income levels and distribution, and tax increases are complex and underexplored. This study investigates different ways of calculating the Relative Income Price (RIP) measure of affordability using Malaysia as a case study. We calculate cigarette affordability in Malaysia between 2009-2019 using government data, and multiple RIP variants. The conventional RIP calculation relies on 2,000 sticks and GDP (henceforth standard RIP). We explore that and other variants that use annual cigarette consumption estimates and/or proportions of various financial measures of wealth in both rural and urban areas. Our findings indicate broadly consistent trends in cigarette affordability across all methods. From 2009 to 2012, there was a slight decrease in the percentage of wealth required to purchase cigarettes, followed by an increase in 2015 and 2016, and then another decline, suggesting a recent trend toward increased affordability. Using the standard RIP method, 0.9 percentage points(pp) more of per capita GDP was required between 2009 and 2016, but, by 2019 it was 0.1pp less than in 2016. However, Household Income Per Capita (HIPC) and Household Expenditure Per Capita (HEPC) provide a more nuanced perspective on cigarette affordability compared to GDP per capita, as they reveal larger shifts in affordability. The conventional 2,000 sticks method using HIPC from 2009 to 2016 indicated 0.3pp more of income was required to purchase cigarettes, but by 2019, it was 1.0pp less than in 2016. Using HIPC with actual consumption estimates, smokers required approximately 0.9pp more of average income to purchase cigarettes between 2014 and 2016, but 2.5pp less from 2016 to 2019. Actual consumption estimates offer insight into smokers' ability to offset higher purchase costs by adjusting consumption patterns without quitting. We conclude that to address issues related to cigarette affordability, the Malaysian government should consider increasing tobacco tax vis-à-vis income growth.