Tuesday, November 25, 2014

RHB | Malaysia | Inflation Inched Higher In October, Retail Fuel Prices On Managed Float From 1 December, 24 Nov 2014


Economic Research
24 November 2014
Malaysia

Economic Highlights




The headline inflation rate inched higher to 2.8% y-o-y in October, from +2.6% in the previous month. The fuel price hike on 2 October exerted some pressure on inflation but was mitigated by the higher base effect when fuel prices were raised in September 2013. The higher inflation in October was reflected in a faster increase in the core inflation rate, largely due to a sharp pick-up in transportation cost. In contrast, the prices of food & non-alcoholic beverages inched lower in September. Separately, the Government announced on 21 November that retail prices for RON95 petrol and diesel will be fixed on a managed float system from 1 December, effectively shifting towards a market determined policy mechanism on fuel prices. The Government, however, has said that it may consider introducing a multi-tiered targeted fuel subsidy mechanism later if oil prices were to spike up again and this is to take care of rising cost of living for the mid- to lower-income groups of the population. We believe it is a right move, as it could ease the Government’s burden on subsidy given that falling crude oil prices will impact the Government’s oil revenue negatively and put pressure on its budget deficit. We do not expect the move to impact the economy significantly, as we believe consumers and businesses will be able to adjust to it and will likely get used to it over time.

Economist:  Peck Boon Soon  | +603 9280 2163
Economist:  Shafizal Shafaai  | +603 9280 2179

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