According to a report by Bernama, MIDF (Malaysian Industrial Development Finance) Research anticipates the government will cut fuel prices – particularly RON 95 petrol and diesel – to ensure price stability and ease the cost of living in Malaysia. At present, the ceiling price per litre for RON 95 petrol is RM2.05, while it is RM2.15 for Euro 5 B10 diesel.
“If the government cuts the RON 95 price by 10 sen to RM1.95 per litre next month, Malaysia’s headline inflation is likely to ease to 2.9% for 2023 as non-food inflation moderates further towards 1.3%, while transport price experiences deeper contraction of -1.7%,” MIDF Research said in a note.
It added that by the end of 2023, the 10-sen reduction will bring the monthly headline inflation rate lower to +1.9% year-on-year (YoY). This means the government would have an additional RM4.31 billion in fiscal expenditure, which can be utilised for other objectives.
“On top of that, the government will have even better fiscal space, given that fiscal debt-to-gross domestic product (GDP) ratio has fallen to 59.3% in the first quarter of 2023, and including contingent liabilities, the latest figure is 76.1%,” MIDF Research said. Referring to the consumer price index (CPI) weightage, transport cost is the third largest burden after food as well as housing and utilities.
“Considering the continuous elevated food inflation and downward income pressure, we anticipate the government to opt for slashing retail fuel prices, particularly RON 95 petrol 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,” the research house said.
In the first half of 2023, the Brent crude oil price averaged at USD79.20 per barrel, which is slightly lower than the government’s estimate of USD80 per barrel. As such, MIDF Research estimates the non-subsidised market price for RON 95 to be RM3.10 per litre. Last year, the RON 95 price differential against market price widened to RM1.86 per litre.
“Thanks to normalising global oil price, the fuel price differential is estimated to be much lower at RM1.05 per litre this year. With the lower price differential, we believe the total subsidy expenditure will be lower than last year,” MIDF Research noted.
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