Malaysians will be hit twice - and hard on both counts - by the government's decision to
increase
the petrol price by 30 sen with effect from today.
This is expected to take inflation and interest rates to a new high - and the worst affected will be low-income earners.
As traders are expected to react immediately by raising the prices of goods and services, few would be surprise if Bank Negara further increases its overnight policy rates (OPR).
Bank Negara had on Feb 22 raised the OPR by 3.25 percent - the second
rate increase since last November - which subsequently led banks to
raise their based lending rates (BLR) to 6.5 percent from 6.25 percent.
An associate professor at International Islamic University told malaysiakini that, while the OPR increase is aimed as a buffer against potential rise in inflation, it would take between six to seven months before the results are felt on the ground.
"Such impacts are expected because fuel is a major input for production. So, we will see prices of goods to increase sooner than we expect, because the announcement was not only abrupt but also involved a substantial sum (of 30 sen more per litre)," said the lecturer, who declined to be named.
"Although there are measures to curtail inflation, these take time to (work)... the impact is usually seen seven to eight months later."
Higher interest rates
The lecturer of 10 years said she believed that the government's repeated assurances will do little to ease price increases all round.
"From the producers' and traders' point of view, they have no choice to increase their prices in order to survive. Although the government says it monitors and controls prices, it is realistically impossible to stop them. So consumers will eventually have to bear the brunt."
She said those most worried will be the low-income earners because goods and services will be more expensive, and it will also cost more to service loans because of higher interests.
"Under the current economic situation, it is unlikely that their income will expand."
She also called on the government to plough back savings on petrol subsidy into investments that benefit society, such as the education and welfare sectors.
"The government has to spend the savings rationally. It cannot afford to spend it on frivolous projects and it will have to prioritise its needs in the people's interest. There must be checks and balances."
When asked whether the government's decision is justified when crude oil price has dropped by US56 cents per barrel, the lecturer said it was too early to make a fair analysis.
"We don't know whether this is a temporary fluctuation. We will have to monitor the price further before any assessment can be made."
'Transfer of problem'
On the same issue, Greg Lopez - a researcher from Kuala Lumpur-based NGO Monitoring Sustainability of Globalisation - said the real issue is not the international price of oil but rather, the government's approach in dealing with the problem.
He said the government under the administration of premier Abdullah Ahmad Badawi seems to have adopted a philosophy that is not in the general interest of citizens.
"We do understand that the government has no say in the international price of oil and that it is saving some RM7.41 billion on fuel subsidies, but how much longer does it plan to pass the bulk of the problem to the consumer?
"Why is it transferring the price of oil to the citizens? They say that they cannot bear the cost any longer and so the consumers are the ones facing the brunt!"
He claimed that the government is also using the same excuse (saving on subsidies) in allowing increase of price for other public services.
This is expected to take inflation and interest rates to a new high - and the worst affected will be low-income earners.
As traders are expected to react immediately by raising the prices of goods and services, few would be surprise if Bank Negara further increases its overnight policy rates (OPR).
Bank Negara had on Feb 22 raised the OPR by 3.25 percent - the second
rate increase since last November - which subsequently led banks to
raise their based lending rates (BLR) to 6.5 percent from 6.25 percent.
An associate professor at International Islamic University told malaysiakini that, while the OPR increase is aimed as a buffer against potential rise in inflation, it would take between six to seven months before the results are felt on the ground.
"Such impacts are expected because fuel is a major input for production. So, we will see prices of goods to increase sooner than we expect, because the announcement was not only abrupt but also involved a substantial sum (of 30 sen more per litre)," said the lecturer, who declined to be named.
"Although there are measures to curtail inflation, these take time to (work)... the impact is usually seen seven to eight months later."
Higher interest rates
The lecturer of 10 years said she believed that the government's repeated assurances will do little to ease price increases all round.
"From the producers' and traders' point of view, they have no choice to increase their prices in order to survive. Although the government says it monitors and controls prices, it is realistically impossible to stop them. So consumers will eventually have to bear the brunt."
She said those most worried will be the low-income earners because goods and services will be more expensive, and it will also cost more to service loans because of higher interests.
"Under the current economic situation, it is unlikely that their income will expand."
She also called on the government to plough back savings on petrol subsidy into investments that benefit society, such as the education and welfare sectors.
"The government has to spend the savings rationally. It cannot afford to spend it on frivolous projects and it will have to prioritise its needs in the people's interest. There must be checks and balances."
When asked whether the government's decision is justified when crude oil price has dropped by US56 cents per barrel, the lecturer said it was too early to make a fair analysis.
"We don't know whether this is a temporary fluctuation. We will have to monitor the price further before any assessment can be made."
'Transfer of problem'
On the same issue, Greg Lopez - a researcher from Kuala Lumpur-based NGO Monitoring Sustainability of Globalisation - said the real issue is not the international price of oil but rather, the government's approach in dealing with the problem.
He said the government under the administration of premier Abdullah Ahmad Badawi seems to have adopted a philosophy that is not in the general interest of citizens.
"We do understand that the government has no say in the international price of oil and that it is saving some RM7.41 billion on fuel subsidies, but how much longer does it plan to pass the bulk of the problem to the consumer?
"Why is it transferring the price of oil to the citizens? They say that they cannot bear the cost any longer and so the consumers are the ones facing the brunt!"
He claimed that the government is also using the same excuse (saving on subsidies) in allowing increase of price for other public services.
"The government is also asking the consumers to pay more for water...
the government states that it is only willing to subsidise this much and
that we have to pay the balance...we've seen this in the electricity
tariff and in fares on public transportation services."
While subsidies on sectors that affect the larger community are being slashed, he noted that subsidies to the business communities continue in the form of entrepreneurship funds and industrial zones incentives to attract and woo foreign investors.
"It would seem that the government's philosophy is that it is willing to subsidise business sectors, but the average citizen must work hard to overcome the price increase because the government cannot seem to manage the economy.
"So the government is transferring part of its problems to consumers to avoid from going bankrupt."
While subsidies on sectors that affect the larger community are being slashed, he noted that subsidies to the business communities continue in the form of entrepreneurship funds and industrial zones incentives to attract and woo foreign investors.
"It would seem that the government's philosophy is that it is willing to subsidise business sectors, but the average citizen must work hard to overcome the price increase because the government cannot seem to manage the economy.
"So the government is transferring part of its problems to consumers to avoid from going bankrupt."
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