AmWatch - Econ Watch : Higher transport cost ahead, 22 Oct 2015

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Econ Watch : Higher transport cost ahead

During the weekend, Prime Minister Datuk Seri Najib Razak justified that the recent hike in toll fares was a “trade-off” because of limited funds. If Putrajaya chose instead to compensate toll concessionaires to prevent the hike, this would only leave the government with less money for programmes, such as the 1Malaysia People’s Aid (BR1M). That said, we envisage that the government could announce more handouts for 2016 during the budget speech tomorrow.

To recap, the handouts through BR1M are expected to increase within five years (from 2013 to 2018). Handouts to households will increase gradually from the initial amount of RM500 to RM1,200. Also, handouts for individuals will increase from RM250 initially to RM600. Allocation for the cash assistance programme through BR1M will likely cost the government RM5.6bil in 2016, compared to the allocation of RM4.9bil for 2015. Higher toll prices for 17 intra-urban highways will raise the cost pressure for road transport services within the CPI basket. Unlike petrol pump prices though, the direct impact of toll price increase to inflation is negligible. Note that the road transport services segment contributes a mere 0.7% to total CPI. Toll price itself is not a component of CPI or a sub-component of transport within the CPI basket. However, higher transport costs will indirectly result in higher prices of goods. That aside, PLUS Malaysia Bhd is scheduled to increase the toll rates for four out of its five highway concessions by 5% in 2016.

Global crude oil prices have been lacklustre in the recent months and Malaysia’s headline inflation had likely slowed in tandem with the further downward adjustment for Malaysia’s petrol pump prices in September. We anticipate slower inflation rate of 2.9% in September mainly because of lower transport cost (vs. +3.1% in August). Despite the direct impact of fuel cost on transport prices and overall inflation, CPI is likely to stay in check in October 2015 owing to higher base during the corresponding period a year ago. That said, inflation will potentially register +2.9% in October 2015 on the back of lower petrol pump prices compared to a year ago.

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