Inflation to hit 2.3% this year after fuel price increase

Posted on 4 September 2013 - 05:36am

Liew Jia Teng and Eva Yeong sunbiz@thesundaily.com 

Wahid

PETALING JAYA (Sept 4, 2013): The hike in fuel prices at local retail pumps from yesterday is expected to quicken the pace of inflation to 2.3% this year, but still within the official targeted range of 2% to 2.5% set by Bank Negara Malaysia, Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar (pix) said.

The Consumer Price Index (CPI) was originally projected to increase by 2% this year, prior to the petrol and diesel price hike.

Wahid said the RM3.3 billion a year saving from the fuel subsidy cut would be diverted straight to the rakyat's pocket in the form of increased handouts.

"Instead of subsidising the entire population and foreigners, it is better for us (government) to distribute subsidies directly to the targeted groups in need," he told reporters after officiating the Ekuinas Outsourced Programme here yesterday.

The government spends RM24 billion a year to keep fuel prices stable.

Wahid also said the government will make "exemptions" on certain goods and services under the plan to introduce a consumption tax.

The Good and Services Tax (GST) will replace the current sales and services tax. The government, Wahid said, is committed to ensure the impact of this new tax regime will be manageable for the population.

"Whenever a country implements the GST, there would be both exempted items and zero-rated items," Wahid added.

Economists are saying that the latest subsidy cut was a step in the right direction as the government seeks to reduce the stubbornly high fiscal deficit, reign in its ballooning debt and address the significant drop of surplus in the country's current account.

These concerns are among the main grouses that contributed to the outflow of foreign funds in recent months, even as the market continued to guess the implication of the US Federal Reserve's strategy to trim its bond-buying programme.

"The global economic environment has changed completely today. We have seen the withdrawal of capital flows from emerging markets, not only in Malaysia, but the whole region as well," Wahid said.

In a separate event in Subang Jaya yesterday, Performance Management & Delivery Unit CEO Datuk Seri Idris Jala said the fuel hike, which came after a two-year lull, signals the government's renewed drive to stick to its fiscal discipline.

"That's the fiscally right thing to do. We're signaling to the market that we're sticking to our fiscal reforms and we feel quite confident in all the measures we're taking. We're on track to achieve our objectives under the Economic Transformation Programme (ETP)," Jala told reporters at the Fifth National Energy Forum.

"We haven't done it for some time. Previously, the CPI was a concern for us so we let go off rationalising the subsidy of fuel price and instead, we focused on addressing the cost of living," he added.

He also said that the price hike is not expected to push the inflation rate and adjustments will be made by the government to prevent profiteering.

"There were studies done with the central bank two years ago and the effect of the price increase on inflation is marginal, within control," he said, adding that the inflation rate should stay below 3% this year.

"If it goes to something else (beyond 3%), we'll have to rethink. That's why it is very important that we don't put in such a big increase at one time. A 20 sen increase is a reasonable quantum," Jala said.