MIDF Research says the Government can reduce the price of RON95 petrol, diesel to reduce the cost of living in Malaysia
According to a report by BernamaMIDF (Malaysian Industrial Development Finance) research predicts the government will reduce fuel prices – especially RON 95 petrol and diesel – to ensure price stability and reduce the cost of living in Malaysia. Currently, the ceiling price per liter for RON 95 petrol is RM 2.05, while it is RM 2.15 for Euro 5 B10 diesel.
“If the government lowers the price of 10-sen RON 95 gasoline to RM1.95/liter next month, Malaysia’s overall inflation is likely to slow to 2.9% for 2023 as non-food inflation gradually eases to 1.3%, while transport prices fall further to -1.7%,” MIDF Research said in a note.
It added that by the end of 2023, a reduction of 10 sen will reduce the monthly inflation rate to +1.9% year-on-year (YoY). This means the government will have an additional RM4.31 billion in fiscal spending, which can be used for other purposes.
“Additionally, the government will have even better fiscal space, as the fiscal debt-to-gross domestic product (GDP) ratio fell to 59.3% in the first quarter of 2023, and including contingent liabilities, the latest figure is 76.1%,” MIDF Research said. Relative to consumer price index (CPI) weighting, transportation costs are the third largest burden after food as well as housing and utilities.
“Considering persistently high food inflation and falling income pressure, we expect the Government to choose to reduce retail fuel prices, especially RON 95 gasoline and diesel in the near future. Structurally, as a net importer of food and exacerbated by the depreciating ringgit, it would be difficult for the government to contain food inflation,” the researcher said.
In the first half of 2023, Brent crude oil prices averaged at $79.20 per barrel, slightly below the government estimate of $80 per barrel. Thus, the MIDF Study estimates Unsubsidized market price for gasoline RON 95 is RM3.10 per liter. Last year, the difference in the price of RON 95 gasoline compared to the market price increased to RM 1.86 per liter.
“Thanks to the normalization of global oil prices, the fuel price differential is estimated to be much lower at RM1.05 per liter this year. Given the lower price differential, we believe total subsidy spending will be lower than last year,” noted MIDF Research.
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