MIDF in its thematic report anticipates the government to slash fuel prices in the coming days, the research house said the fuel targeted-subsidy rollout will not be anytime soon. as the government may not roll out the targeted fuel subsidy
especially for RON95 and Diesel in the near term.
Firstly, it said the retail fuel has limited alternatives as compared to cooking oil and electricity. Integrated and efficient public transport is only available in the Klang Valley yet it is specifically for certain areas. Although Electric Vehicle is another alternative, the shift from fuel-powered to electric-powered vehicle will not happen overnight. Based on USD80pb oil price assumption, we estimate market price for RON95 is RM3.10 per litre. In other words, full floating for the RON95 will result in more than 50% price increase which will have significantly big jump in the CPI data.
Another reason that is of concern is the B40 income classification. If the government were to use national B40
measurement for household income at RM3,166 as the benchmark for subsidized fuel recipients, the increased fuel prices
will lead to higher cost of living pressure to the B40s in states like Johor, Melaka, Pulau Pinang, Selangor, Terengganu and
Kuala Lumpur. These people will be the hardest hit as their level of income exceeds the national B40 benchmark, therefore
not eligible for the targeted fuel subsidy program. The house opines limited alternatives for RON95 & Diesel and complexity of
household income levels between states are among the tough challenges for the government to roll-out the fuel-targeted
subsidy in the near term.
The house anticipates the government to slash RON95 price by 10 cents considering the continuous elevated food inflation
and downward income pressure, we anticipate the government to opt for slashing retail fuel prices, particularly RON95 and
Diesel in the near term. Structurally, being a net food importer and aggravated by depreciated Ringgit, it will be hard for the
government to contain food inflation. As for income pressure, the gloomy external trade outlook will add more downside
to manufacturing and overall economic activities. Assuming the government cut RON95 price by 10 cents to RM1.95
per litre in Aug-23, MIDF estimates Malaysia’s headline inflation to record slightly lower at +2.9% for 2023 as non-food inflation to moderate further towards +1.3% while transport price to experience deeper contraction of -1.7%. By year-end, the 10- cent cut will bring the monthly headline inflation rate lower to +1.9%yoy as compared to +2.3%yoy (refer Chart 12).
