According to MIDF Research, there are expectations that the Malaysian government might reduce retail fuel prices, particularly for RON95 and diesel, in an effort to stabilize prices and ease the burden of living costs in the country.
According to a report compiled by Bernama, the research indicates that a 10 sen cut in RON95 prices to RM1.95 per litre next month could lead to a decrease in Malaysia’s headline inflation to 2.9 per cent for the year. The moderation of non-food inflation towards 1.3 per cent and a deeper contraction of -1.7 per cent in transport prices could be achieved as a result of this move.
Moreover, the research estimates that by the year-end, the 10 sen price reduction could bring the monthly headline inflation rate down to +1.9 per cent year-on-year (y-o-y). Additionally, this would leave the government with an additional RM4.31 billion in fiscal expenditure that could be allocated to other objectives.
MIDF Research also highlights the positive fiscal space for the government, with the fiscal debt-to-Gross Domestic Product (GDP) ratio dropping to 59.3 per cent in the first quarter of the year, and including contingent liabilities, the latest figure standing at 76.1 per cent.
Transport costs, as per the Consumer Price Index (CPI) weightage, are noted to be the third-largest burden after food and housing/utilities. Considering the persistently elevated food inflation and declining income pressure, the research house predicts that the government may opt to reduce retail fuel prices, especially RON95 and diesel, in the near future.
MIDF Research points out the challenges in containing food inflation, given Malaysia’s status as a net food importer, exacerbated by the depreciation of the ringgit. The research also mentions that the recent dismantling of the Black Sea grain corridor, leading to no agreement for exports of food and fertilizers from Ukraine and Russia to the global market, could contribute to higher food inflation and price volatility.