KUALA LUMPUR – Economists caution that the recent hike in unsubsidised diesel prices in the peninsular region, though lower compared to neighbouring Southeast Asian countries, could trigger shifts in consumer habits and escalate the prices of goods and services.
Bank Muamalat chief economist Mohd Afzanizam Abdul Rashid noted that while local diesel rates remain comparatively reasonable, the uptick from previous levels could prompt users to explore fuel-efficient alternatives or reassess business strategies to trim operational expenses.
“(Users) might seek better alternatives, such as fuel-efficient vehicles, or relook at their business model to reduce their operating costs.
“This may include looking at digitalisation that will help improve their productivity,” he told Scoop.
Highlighting the positive aspects of subsidy rationalisation, Afzanizam emphasised that it enables the government to allocate funds to critical sectors like education, healthcare, and infrastructure, nurturing a skilled workforce and improving living standards for Malaysians.
“These areas are crucial for the country’s capacity building, as it will allow Malaysia to have talented human capital when more money is being spent on education.
“The benefits will accrue to Malaysians and future generations, as they can live in a better condition (from more government expenditure) in the three areas,” he said.
However, he cautioned against potential exploitation by businesses through price markups, urging stringent governmental oversight to deter malpractices like profiteering.
Similarly, Malaysian Institute of Economic Research (MIER) head of research Shankaran Nambiar predicted across-the-board price hikes in response to elevated transportation costs, foreseeing a potential 3% to 3.5% surge in the consumer price index (CPI), particularly affecting the manufacturing and agriculture sectors.
Commenting on the effectiveness of the government’s monthly RM200 cash aid initiative, Nambiar expressed uncertainty about its adequacy and potential misallocation risks, anticipating contained yet perceptible price rises.
Despite these concerns, he maintained that the policy was unlikely to significantly alter inflation projections.
“We are not sure if it will be sufficient, and we can’t be sure it will not be misallocated. As a consequence, there is bound to be some price rise, though it will be contained.
“Nevertheless, this policy will not alter the central bank’s projection. I think at worst inflation will be in the range of 3 to 3.5% for the year,” he reiterated.
In contrast, associate professor Ahmed Razman Abdul Latiff downplayed the subsidy removal’s impact on price increments or consumer behaviour, citing continued diesel subsidies for 33 transportation companies.
Finance Minister II Datuk Seri Amir Hamzah Azizan recently announced the new retail diesel price of RM3.35 per litre, effective immediately, signalling a shift from the subsidised diesel control system (SKDS) 2.0, which previously provided fleet cards to eligible logistics vehicles to mitigate price impacts on consumer goods.
Under SKDS 1.0, diesel prices remain subsidised for land public transport and fishermen at RM1.88 and RM1.65 per litre, respectively, while commercial and private vehicles benefit from a subsidised rate of RM2.15 per litre. – June 10, 2024
