Expect more fuel price increase this year: Economists

Posted on 4 September 2013 - 05:36am

Kang Siew Li sunbiz@thesundaily.com 

PETALING JAYA (Sept 4, 2013): Yesterday's fuel price increase may not be the only one this year. Some economists are already expecting another round of subsidy cuts before the year is out.

Alliance Research Sdn Bhd sees another hike of 20 sen per litre before year-end, which will raise RON95 petrol prices to RM2.30 per litre, given the continuing increases in international prices for crude oil.

"After the announcement on Monday (which saw a 20 sen hike in the retail price of RON95 to RM2.10 per litre and diesel to RM2 per litre effective yesterday), the subsidy for RON95 is still at 63 sen per litre versus the originally intended amount of 40 sen per litre," it said, adding that the latest hike is a step in the right direction.

Previously, the government has been subsidising 83 sen for every litre of RON95 petrol sold, and RM1 for every litre of diesel sold.

For RHB Research Institute Sdn Bhd, it expects another increase six to nine months down the road which could see fuel prices being raised twice for 2014, while Kenanga Research sees the possibility of another fuel price hike at least once in the next six to 12 months.

But in the immediate term, Malaysia's inflation rate is expected to shoot up to as high as 4% due to the first round impact on transportation, food and energy prices, said economists.

Alliance Research said even if the inflation rises further towards 4% over the next four months, it is still below the 25-year high of 8.5% registered in August and September 2008.

It noted that after the 70 sen fuel hike in June 2008, inflation spiked to 7.7% in June, 8.5% in July-August, 8.2% in September and 7.6% in October. Thereafter, price increases stabilised at around 5%.

"On average, the full-year inflation is unlikely to exceed our forecast of up to 2.5%. Given the spike is within Bank Negara Malaysia's inflation target range of 2%-2.5%, we are confident that policymakers will keep the overnight policy rate (OPR) at 3% for the rest of the year," it added.

RHB Research expects the latest hike in fuel prices to lead the inflation rate to jump to 3% in September and reach a high of 3.5% in December, before tapering off.

It has raised its CPI for 2013 to an estimate of 2.2% from its earlier projection of 2%.

"Potentially, if the government raise the fuel prices again six to nine months down the road, it could push inflation higher to around 3.2% in 2014," it added.

Meanwhile, Kenanga Research is revising the average CPI growth for this year to 2.5% from 2.1%.

"On the expectation that the government would introduce the goods and services tax (GST) next year and the possibility of another fuel hike at least once in the next six to 12 months, our preliminary projection suggest that the average CPI would likely exceed 3% by the end of next year," said Kenanga Research, maintaining that the OPR would stay at 3% till year-end.