Too early to assess impact of higher diesel prices

CGSI Research said it may be too early to assess the second-round impact of the diesel price hike using June CPI data.

PETALING JAYA: Malaysia’s price pressures remain in check for now, as it is too early to assess the impact from higher diesel prices.

Headline inflation was unchanged at 2% year-on-year (y-o-y) in June while core inflation was sustained at 1.9% y-o-y. On a month-on-month (m-o-m) basis, the consumer price index (CPI) increased by 0.2%.

Food and transport costs drove inflation in June but was buffered by no changes in utility costs on a y-o-y basis.

The higher transport costs in the month was attributed to the increase in operation of personal transport equipment sub-component, following the revision in diesel retail price as well as an increase in Brent crude oil price to US$83 per barrel (up by 3% y-o-y) in the month.

CGS International (CGSI) Research said the impact of diesel price hike could be seen in July data and it may be too early to assess the second-round impact of the diesel price hike using June CPI data.

To recap, diesel prices were raised from RM2.15 per litre to RM3.35 per litre overnight on June 10, 2024 as part of a subsidy re-targeting measures.

“The direct impact was clearly seen in the transport component, where an increase of 0.5% m-o-m was recorded in June (diesel constitutes 0.2% of the CPI basket).

“Yet, the impact on related components such as transport services or fresh foods is not yet obvious,” it said in a report.

CGSI Research said another component to watch for is June producer price index, to be released on July 29, which may provide an early indication of the possible pass-through impact of the diesel price hike on other CPI components.

The research outfit expects price pressures to remain strong in the second half of 2024 (2H24), partially due to a low base following stronger macro data from the consumption side such as retail sales and imports of consumption goods.

“We believe the price revision for RON95, which we anticipate to occur in the next few months, will positively impact the inflation number.

“However, we believe the price rationalisation will be done in stages.

“In addition, there is still pressure on prices for travel-related goods and services, especially expenses in restaurants and cafes, accommodation services as well as passenger transport by air, likely due to an increase in the number of tourists,” it said.