Malaysia: Subsidies in place to mitigate impact of inflation

PETALING JAYA: Malaysia is well positioned to weather the spike in inflation globally with the efforts by the government in terms of providing subsidies as well as having a ceiling price for some consumer goods.

Sunway University professor of economics Yeah Kim Leng said the escalation of prices especially commodities is affecting countries around the world.

For Malaysia, Yeah said the government’s control on food and energy prices has helped to stabilise inflation.

Last month, Malaysia’s Consumer Price Index had moderated to 2.2% compared with 8.5% in the United States. Other western economies are also experiencing price shocks especially in terms of food and energy. Meanwhile, professor Geoffrey Williams of Malaysia University of Science and Technology said the higher income derived from crude oil prices would be able to absorb the petrol subsidies in the country.“The subsidy cost effects, which can be crippling in non-oil producing countries, are actually quite muted here in Malaysia,” Williams said.

According to him, without the subsidies, petrol will become unaffordable for millions of people especially those in the middle income group.

Williams said economic activities were supported by keeping the petrol prices affordable.

On the same note, Yeah said the subsidies for basic necessities such cooking oil and cooking gas were given to ensure that the low-income groups were not adversely affected by inflation.

However, he said certain subsidies should be targeted only to the lower income group.

He noted that the government was considering a targeted form of subsidies, and the potential savings could be channelled to the education and health sectors.

The high prices of energy and food will likely continue as long as the Russia-Ukraine conflict and China’s lockdown continue, disrupting the supply chain of goods.

While the weakening of ringgit will result in higher import costs, Yeah said the impact would be manageable.

He pointed out that despite the double-digit increase in producers’ prices, the pass-through to the consumers remained muted.

On ceiling price set for some consumer items, Williams said while they would benefit the consumers in the short term, they might discourage companies from supplying price-controlled items in the long term.

With prices forced to be kept down to comply with the regulations despite rising costs, companies could see their profit margins squeezed or their losses increase, according to Williams.