Low impact on inflation from diesel price hike

Finance Ministry Treasury Secretary-General Datuk Johan Mahmood Merican believes the targeted inflation rate will not be revised upwards following the removal of the diesel subsidy.

KUALA LUMPUR: The inflationary impact from the one-off diesel subsidy rationalisation measure by the government is likely contained, given diesel’s small 0.2% weight in the consumer price index (CPI) basket.

However, there are concerns about businesses finding loopholes or excuses to raise prices indiscriminately to reflect the purported higher cost of doing business with the diesel price hike.

That said, Finance Ministry Treasury Secretary-General Datuk Johan Mahmood Merican believes the targeted inflation rate will not be revised upwards following the removal of the diesel subsidy.

“Yes we have increased diesel prices quite sharply from RM2.15 to RM3.35 per litre, but at the same time, we are allowing the logistic vehicles to continue (buying diesel) at RM2.15.

“In fact, there are 400,000 logistic vehicles and the compensation for individuals is another 300,000. So, we have actually covered half of the diesel vehicles in Peninsular Malaysia. That mitigates the headline number.

“Without giving a specific number, suffice to say that what has been done for diesel targeting, the impact on inflation is such that it will still remain within the official band that we are targeting for 2024 – 2% and 3.5%,” he said during a panel session at the Bank Negara Malaysia Sasana Symposium 2024 yesterday.

Second Finance Minister Datuk Seri Amir Hamzah Azizan said the diesel price in Peninsular Malaysia would rise by 55.8% to the market rate of RM3.35 per litre, starting from June 10, while in Sabah and Sarawak, it will remain subsidised at RM2.15 per litre.

Under the targeted scheme, certain logistic vehicles, public transport and emergency vehicles, and fishermen will also be eligible for subsidised prices.

The government has introduced Budi Madani with the provision of a monthly RM200 cash subsidy for eligible groups, such as farmers, smallholders and private diesel vehicle owners.

This initiative is part of the government’s efforts to ensure that subsidy allocations are targeted at eligible groups, covering individual assistance (Budi Individu), farmers and smallholders (Budi Agri-Komoditi) and companies and transport vehicles (MySubsidi Diesel).

The government expects to save RM4bil per annum from this move that plugs leakages of subsidised diesel.

According to Bursa Malaysia chairman Tan Sri Abdul Wahid Omar, the government can get the buy-in from the public if it can show how the savings are allocated.

“If the government can demonstrate that with the savings of RM4bil from the diesel subsidy rationalisation, part of it goes to the fiscal deficit and the rest of it goes towards building hospitals, schools, improving roads, etc, then people will be more receptive to the government’s efforts,” he said.

All eyes will be on the next reform and the savings that would arise from the unwinding of blanket RON95 subsidies. The timing and magnitude of this adjustment remain uncertain, although it is largely expected to be carried out next year.