M'sia CPI seen rising 3% following electricity tariff increase

STAR, 4 December 2013

KUALA LUMPUR: Businesses and households can expect costs to go up, as inflation trends higher in the wake of the new electricity tariffs effective Jan 1 for the peninsula as well as Sabah and Labuan.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said an early estimate showed that there could be a 0.4% increase in the consumer price index (CPI), which measures headline inflation, including volatile food and energy costs, when the new electricity rates become effective.

Sarawak is not affected by the hike as its power supply and distribution are managed by state-owned Sarawak Energy Bhd. The state has a separate enacment on electricity production.

Economists expect inflation to rise above 3% next year after picking up pace in recent months, as the Government consolidates spending with cuts in subsidies such as fuel, where the RON95 petrol and diesel prices were raised by 20 sen each on Sept 2 to RM2.10 and RM2 per litre, respectively.

Data from the Statistics Department showed the CPI rose to 2.8% year-on-year in October from 2.6% in September and 1.9% in August.

“Right now, it would be in the region of 3%, but we don’t know what other adjustments are to take place,” Zeti told reporters at the Leadership Energy Summit Asia 2013.

However, she said the tariff hike’s impact on prices would only be temporary based on the central bank’s assessment of the trend.

“This is something that needs to be done because it is not sustainable when the market price changes, and therefore, it is important that Malaysia makes such adjustments,” said Zeti.

The rise in tariffs, announced by Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili on Monday, would see those in the peninsula paying an average of 14.89% or 4.99 sen more per kilowatt-hour (kWh) to 38.53 sen, while for Sabah and Labuan, the average tariff would rise 16.9% or five sen per kWh to 34.52 sen.

For industry users, the average tariff will be raised by 16.85% to 36.15 sen per kWh, while commercial users will pay 47.92 sen, up from 41.01 sen.

Citigroup Inc economist Kit Wei Zheng said in a report that Bank Negara might not be in a hurry to raise benchmark interest rates, which stands at 3%, as there were few signs of demand-pull inflation or second-round effects after the September fuel price hike.

He pointed out that recent comments from Zeti suggested that the central bank might be prepared to tolerate what it viewed as a “temporary” rise in inflation (of up to 3.3% in the first quarter of next year) due to supply-side cost-push factors, while the growth outlook remains uncertain.

Kit said hikes in the benchmark interest rates had become increasingly contingent over the growth outlook firming up.

He expected a 25-basis point rate hike in May, with another 25-basis point hike in July in anticipation of inflation hitting 3.8% to 3.9% from June/August.

He said considerations that the central bank would have to take into account included the ability of households to service debt, as well as the direct and second-round inflationary impact of the 6% goods and services tax effective April 2015.

“Going forward, our base case is for five sen to 10 sen per litre fuel price hike by year-end and for 20 sen per litre hike before July 1, 2014. As we had argued in our assessment of Budget 2014, we suspect policymakers would probably opt for gradual but somewhat more frequent and frontloaded hikes.

“With the kick up from the tobacco excise hike, inflation may hit Bank Negara’s implicit tolerance threshold of 3% by year-end, with a decisive breach coming in the first-half of 2014,” he noted.

Meanwhile, CIMB Investment Bank Bhd economic research head Lee Heng Guie said the second-round impact of higher power rates depended on the degree of pass-through to end-users.

“If previous episodes of tariff hikes are any guide, then the impact on inflation could be rather muted. Thus, we maintain our CPI growth estimates of 2.2% for this year and 3% for 2014, which continue to factor in some administered price adjustments, especially for fuel,” he said.

Pemandu: Economy can absorb 5pc inflation

By Shannon Teoh

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

 

KUALA LUMPUR, June 23 — Putrajaya’s efficiency unit believes the economy can weather inflation of up to five per cent for up to three years, saying today subsidy cuts were implemented to ensure minimal impact amid a global rise in commodity prices.
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.

Diesel subsidy cuts felt by housewives, restaurateurs

By Melissa Chi

Malaysian Insider, June 23, 2011

KUALA LUMPUR, June 23 — All through the Pudu wet market, one of the biggest in the Klang Valley, one can hear customers complaining that prices of goods are shooting up while sellers try to convince them that they are not profiting as well since the start of 2011.

This conversation is repeated across the country from Perlis to Sabah, reflecting the 2.9 per cent hike in the Consumer Price Index (CPI) for the first four months of 2011 but more since June when Putrajaya cut diesel subsidies for hauliers and trawlers, adding to the price of basic food items and other goods.

People buying fish at the Pudu wet market. Customers are complaining that prices of almost everything have gone up. — Picture by Choo Choy May

Restaurant owner Kak Mai told The Malaysian Insider that when prices of chicken and fish go up, she can’t raise the prices at her restaurant.

“I’ll just have to make less, what to do,” the 53-year-old said, pointing out that siakap fish (barramundi) has gone up from RM20 to RM24 per kg in the past few days, although she expects prices to come back down.

Fifty-six-year-old Mrs Cheong , who operates at a school canteen, was buying fish in bulk when approached by The Malaysian Insider.

“I sell at a school canteen, after signing the contract, the price is fixed and I cannot hike the price at all,” she said, adding that her profit went down from 20 per cent to 10 per cent in the past few weeks.

Until May 31, 2011, C2 trawler operators received a subsidy of 28,000l to 30,000l of diesel per month at RM1.25 per litre. Diesel super subsidies were removed for the C2 fishing trawlers and nine other logistic-related groups this month.

Those operating trawlers in the C2 category or 30 nautical miles offshore have been on strike since June 11 over the June 1 diesel price hike from RM1.25 to RM1.80 per litre.

Prime Minister Datuk Seri Najib Razak launched the Kedai Rakyat 1 Malaysia (KR1M) no-frills grocery shops yesterday in a move to mitigate rising prices of dry goods in the Klang Valley.

But the prices in the wet markets are subject to volatility.

Mohd Rosli Osman, 43, who was shopping for his family, pointed out that kerapu (grouper) went from RM9 to RM12 per kg and ikan bawal (pomfret) from RM8 to RM15.

Chan Soon Hoong, 48, who has been selling fish for 30 years, said the government should continue to provide the diesel subsidy.

“It costs twice as much now for almost anything,” he said.

Yuslizal, 42, another fishmonger at the market, agreed.

“The government should continue to subsidise. If the prices are too high, consumers don’t want to buy. Many of my customers complain about the price hike and they don’t know the reason why,” he said, adding that with less sales his profit margin has grown smaller, sometimes he just breaks even.

Rudi, 28, who has been operating at the market for three years, sells only freshwater fish such as pacu, rohu and tilapia.

He said the prices of his fish have also gone up as without the diesel subsidy transportation costs have gone up as well.

“Luckily I just sell freshwater fish because sea fish are way more expensive,” he said.

Mohd Erfan, 29, who sells chicken next to Rudi’s stall, said the price of chicken went up 30 sen continuously over the past three days.

As he was chopping up pieces of chicken, he explained that regular customers who run restaurants have cut down their orders from 10 birds to six per order.

He sells about 200kg to 250kg of chicken per day.

However, when The Malaysian Insider spoke to vegetable sellers, they said that there was no hike in their prices. Most of their vegetables come from Cameron Highlands.

The Najib administration has to take a razor to its subsidy bill despite surging inflation which hit a two-year high of 3.2 per cent in April as it attempts to trim the budget deficit down to 5.4 per cent after it hit a two-decade high of 7 per cent in 2009.

For the first four months of the year when the CPI averaged 2.9 per cent up, the three indices that rose highest was Transport (+ 4.6 per cent); Food and Non-Alcoholic Beverages (+ 4.5 per cent) and Housing, Water, Electricity, Gas and Other Fuels (+ 1.5 per cent).

Putrajaya said the June 1 subsidy cuts would save RM659.30 million, and had to be done due to the global increase in fuel prices since the start of 2011. Coincidentally, it brought down the market float price of RON97 premium petrol by 10 sen to RM2.80 a litre this month when global prices eased.