Higher inflation


  • Corporate News
  • Saturday, 16 Sep 2017

THE already high cost of living is about to get higher in the coming months and Malaysians should brace themselves for it.

Why? Crude oil prices are rising. From June 21, when prices were at the lowest for the year, to Sept 14, Brent, the global benchmark, has jumped 21.56% while the US benchmark WTI has risen 16.13%.

When crude oil prices broke the US$50 a barrel level late last year and into this year, consumers felt the pinch. Headline inflation was at its highest led by transportation and fuel costs in March before tapering off as oil prices dropped into a trading range in the low to mid-US$40s.

Brent has gone back to above US$50 and should WTI break above the US$50 level, there is a possibility it will go back to the mid-US$50 trading levels. Transportation and fuel costs will rise in tandem and this will have a spillover effect on other prices.

Because of the high-base effect (inflation was rising late last year into this year), it looks like inflation is moderating when comparisons are made. But when volatile fuel and food prices are stripped off from the consumer price index, core inflation, which reflects the prevalence of inflation, is actually rising.

The grouses of consumers, despite the best efforts of policymakers to explain, are real where prices are concerned. The high cost of living, coupled with low wages, will mean that households that spend the better portion of their income on necessities such as food, housing and transportation, will feel the impact even more.

The economy looks like growing at a healthy pace this year versus the doom-and-gloom at the beginning of the year. But the growth rate is not reflected in consumer sentiment.

Will the unexpectedly good performance of the economy this year reflect in the wages of ordinary wage earners in the coming year? Because it is of no use to say that the economy is growing when the benefits do not trickle down to wage earners.

Samling, a trail blazer?

THE oil and gas (O&G) industry may not be exciting in Peninsular Malaysia, but it sure is sizzling in Sarawak.

The Samling group this week increased further its interest in Barakah Offshore Petroleum Bhd to 13.19%, underling its interest in the O&G company. It does not take much to guess the interest of Samling group in Barakah – it obviously has to do with the greater development of the O&G industry in the state.

Last month, the state set up its very own version of Petronas – Petros Sarawak. Petros is now actively looking for a chief executive and other key officials to drive the organisation.

All O&G-related jobs in Sarawak will likely be channelled through Petros.

As this is unfolding, obviously Sarawak-controlled O&G companies would stand a better chance to bag jobs from Petros.

At the moment, there are not many large O&G companies from Sarawak. And it would be futile to build one from scratch when there are many O&G companies that are going for a song.

Two years ago, nobody would have been able to buy into an O&G company such as Barakah at such low valuations. Today, it is very possible because the peninsula-based O&G companies are fighting for a small pool of jobs.

Margins are low and many have assets that are left idle with a bank loan to service.

The time is ripe for more merger and acquisition activities in the O&G sector.

For companies such as Samling that made its fortune in timber, switching focus to the O&G sector with the help of Petros is apt.

Timber is a tough industry, as the easy logging concessions have all been taken up. The O&G sector is not easy. But valuations are low and good companies with strong manpower are up for sale at a bargain.

So, is the Samling group’s move into Barakah just the start of a new acquisition trail?

A Geely CEO for Proton

TO those following the developments of Proton Holdings Bhd, they should not be surprised at the latest development.

The new chief executive of the company that produces the national model will be from Zhejiang Geely Holding Group Co Ltd. The person will replace Datuk Ahmad Fuaad Kenali from Sept 30 onwards.

This will mark the first time that a foreigner would be holding the CEO’s post in Proton, a post that would effectively make him (or her) the head of production operations.

The other key positions such as chairman and the head of Proton Edar – the marketing and distribution arm of Proton – are still held by Malaysians.

As a 49% shareholder in Proton, Geely certainly is entitled to nominate its representative to Proton.

The automotive group from China has put in its money for its stake. It has the right to see that its interest is taken care of.

Not to be forgotten is that Proton was bleeding DRB-Hicom to the extent that the local automotive group had to seek financial assistance from the government. The losses were close to RM1bil per annum at a critical stage.

It was at this juncture that Geely came into the picture.

Going forward, if a change in guard at the helm can help Proton turn around, then it is something that should be welcomed.

After all, we have tried local talent and it has not worked.

So, let’s give the new strategic shareholder a chance, even if it means putting its representative as the CEO.

For long, Proton cars’ quality has been viewed unfavourably. That is one of the reasons why it has not been able to capture a bigger share of the local market.

Hopefully, with a new strategic shareholder and a new man at the helm – even though the person is a foreigner – the view on Proton cars will change, and the fortunes of the company with it.

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Business , Brent , inflation , hike , Bank Negara

   

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