Malaysian Insider, June 23, 2011
Jala said the effects of subsidy cuts were minimal as they were only being made in “small doses”. — file pic
Inflation spiked to three per cent in March and climbed to a two-year high of 3.3 per cent last month, with analysts predicting a further surge past four per cent due to subsidy cuts introduced this month. Most of the price jumps were for in the food and transport sectors.
The Performance Management and Delivery Unit (Pemandu) said that the central bank was consulted before deciding on subsidy cuts that began last year and concluded that “two to three years of between four to five per cent inflation is still okay.”
“The economy will still be okay and inflation will come back down to around three per cent after that,” said Minister in the Prime Minister’s Department Datuk Seri Idris Jala.
The Pemandu chief executive said that the main cause of inflation was the global rise of commodity prices, and the impact of the subsidy cuts were minimal as they were being implemented in “small doses and take into account pain points” for the public.
Seafood prices rose rapidly after diesel super-subsidies were pulled. — Picture by Choo Choy May
Putrajaya insists that it is forced to make cuts to a subsidy bill that would otherwise double to RM21 billion this year.
Most of the subsidies are for fuel, due to the disparity in prices for grades of petrol. RON95 petrol is RM1.90 a litre while premium grade RON97 is now RM2.80 a litre, pushing more motorists to use the lesser grade and adding to the subsidies needed to keep prices low.
The government has repeatedly explained that it must trim subsidies to ensure that the budget deficit, which hit a two-decade high of seven per cent in 2009, is reined in to a projected 5.4 per cent this year.
The Najib administration is expected to call a general election within the year but recent hikes to fuel, electricity and sugar prices have sparked public anger, leading to protests from groups such as fishermen, whose recent strike caused a spike in seafood prices.
A diesel super-subsidy was abolished on June 1 and those driving commercial vehicles now pay RM1.80 per litre of Euro 2 grade diesel instead of RM1.481 previously. The government said most of the cheap diesel was being smuggled to neighbouring countries and has started a crackdown to prevent subsidy leakages.
Commercial lorry operators have said this would force them to charge customers 18 per cent more.
Electricity tariffs were also recently increased by an average of seven per cent but Jala said today that the hikes only affected those who used more than 300 kilowatt-hours per month, which is less than a quarter of consumers.
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