PETALING JAYA: A sharp increase in diesel prices is expected to drive up inflation and strain businesses, with early signs already emerging in transportation and construction sectors.
Centre for Market Education chief economist Alvin Desfiandi said the recent surge in diesel prices is already having a negative impact, pointing to rising prices of milk and packaged goods as early indicators.
“The impact is quite straightforward. Fuel accounts for about 35% of total operating cost, and diesel has risen by around 84.6%.
“That implies a cost shock of roughly 29.6% on total operating cost, which is broadly consistent with the proposed 25% to 28% fare increase,” he said.
On Tuesday, factory bus operators warned of a 25% to 28% fare increase as surging diesel prices erode margins and strain their ability to sustain operations.
At the macro level, Desfiandi said the impact will be “sound but not explosive”, noting that headline inflation currently stands at 1.4% but does not yet reflect the recent diesel shock.
“I would expect inflation to rise, but remain within the projected range of 1.5% to 2.5%,” he added.
Desfiandi warned that the ripple effects will extend across multiple channels, including factory transport, logistics, construction as well as small and medium enterprises (SMEs).
He said higher factory bus fares could raise manufacturers’ operating costs and disrupt worker mobility if contractual arrangements break down, while transport and logistics-linked businesses are already facing mounting cost pressures despite targeted support measures.
“Diesel-intensive sectors such as construction are reportedly pausing activity, while SMEs are seeing their cash flow come under strain, which is why calls for temporary loan moratoriums are reappearing,” he said.
On policy response, he cautioned against broad-based fuel subsidies, saying the fiscal burden had already exceeded RM3bil per month and rose to about RM4bil when crude oil prices reached US$100 (RM402) per barrel.
“The subsidy must be framed as a labour mobility continuity measure, not a return to broad fuel subsidisation.
“Otherwise, it risks distorting price signals and reopening leakage and arbitrage issues,” he said.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said businesses will need to reassess their cost structures and identify ways to optimise operations in response to the higher cost environment.
“At the same time, they should explore available government assistance such as soft loans or grants that can help reduce business costs,” he said.
The government, he added, also has its limitations as it needs to allocate spending to other sectors such as education, healthcare, infrastructure and security.
