Malaysia inflation rate could hit 9-year high of 5% on petrol and diesel price hikes

This article belongs to the Malaysia inflation watch story arc.

bloomberg.com :

Malaysia's ringgit fell for a second day on concern a weakening currency and quickening inflation will diminish the appeal of the nation's debt. The ringgit has dropped almost 2% against the dollar in the past 3 months. The government last week raised prices of diesel and gasoline by as much as 63% to prevent the budget deficit from widening, while the central bank said inflation may reach a 9-year high of 5% this month [Jun 2008]. The April inflation rate had hit a 14-month high of 3%. Malaysia's central bank has held its overnight benchmark policy rate at 3.5% since April 2006. "The markets are aggressively pricing in interest-rate hike expectations," said Irene Cheung, a currency strategist at ABN Amro Bank in Singapore.

- Compared to Singapore, Malaysia's CPI inflation rate at 3% has been relatively benign, but as we now know, it had been due to the government's heavy subsidies of petrol and diesel prices even as crude oil prices continued to set all-time records. Now, with the elimination of fuel subsidies and switching over to full market pricing, the Malaysian inflation rate will rise substantially and could even start to approach Singapore's inflation rate, which had hit a 26-year high of 7.5% in April 2008. The economists may be in for a surprise.

Malaysia petrol and diesel price hike to bite Singapore hard, worsening record inflation rate

This article belongs to the Singapore inflation watch story arc.

thestar.com.my :

The fuel price hike in Malaysia is going to bite Singaporeans soon, and hard. Prices of a range of goods are set to go up in the island as the cost of trucking them in rises, with fresh food topping the list. Importers said vegetables, eggs and live poultry from Malaysia will cost 10% to 30% more from as early as next week [9 Jun 2008]. The impact will not be limited to produce. Practically everything imported from Malaysia, including building materials, will also cost more soon. Bus tickets are going to be more expensive - coach companies are already talking about a 25% hike in fares.

The increases follow Malaysia's decision to trim subsidies for petrol and diesel and raise pump prices from Thursday [5 Jun 2008]. Overnight, that meant a 40% increase in petrol prices. The lorries carrying market produce run mainly on diesel, which saw the biggest jump in price, rising 63% to RM2.58 per litre. Wholesalers in Singapore are bracing for a big hit, and say they will have no choice but to pass on some of the increases to consumers. Singapore imported 177,117 tonnes of vegetables (46% of total imports), 61,304 tonnes of chicken (37%) and 60,751 tonnes of eggs (100%) from Malaysia last year.

- What should be more worrying than the Malaysian petrol price hike is the diesel price that was raised at the same time. The 40% petrol price hike is just an annoyance for the relatively smaller population of motorists who drive up north every now and then. But the diesel price will affect everyone as it will have a direct impact on many categories of food which are imported via trucks arriving from all parts of Malaysia each and every day. The Singapore CPI price inflation rate is already at 7.5% as of April 2008, a 26-year record high. With these new developments, the inflation rate is set to go even higher. There was talk in the media earlier of easing inflation in the second half. So much for that!

My brother-in-law who is Malaysian, told me that the government will be reviewing the petrol and diesel prices every month from now onward. That sounds to me like they will be monitoring and matching market movements closely. As crude oil prices move up, their petrol and diesel prices will then move up accordingly - full market pricing in all its wonder and glory. Hence, the Singapore CPI figure could easily hit 10% or higher as oil prices continue their upward climb, and mind you, that's only the official figures - actual street price increases will be much higher. Just wait and see.

Peak Oil, Peak Airlines - as oil prices go up, airlines cut flights and jobs

news.yahoo.com :

As oil prices soar, airlines are coming back down to earth with a bump - cutting routes and capacity, ramping up prices and axing jobs as bosses freely admit the industry is in the "worst crisis since 9/11." Oil prices on Friday [6 Jun 2008] broke through the $139 level for the first time in New York, powered by a wilting dollar. With analysts such as Goldman Sachs suggesting the price could reach $200 a barrel within two years, the aviation industry appears to be in a nose-dive. Airlines are particularly susceptible to hikes in the oil price, as jet fuel makes up a substantial part of their operating costs.

So far US airlines are taking the brunt of the hit. Continental Airlines said Thursday [5 Jun 2008] it would cull 3,000 jobs and ground 67 aging planes in a massive retrenchment due to the price of fuel. Continental's cuts came a day after United Airlines's parent company, UAL, announced it was removing 100 aircraft and cutting up to 1,100 jobs. Two weeks earlier, AMR, the parent company of American Airlines, announced big cuts in domestic flights, shed workers and raised some fees for passengers. So far this year the industry has eliminated nearly 22,000 jobs, compared with 21,710 for the whole of 2007. Where the US leads, others follow. According to the International Air Transport Association (IATA), 24 airlines have gone bust in the past 6 months, with its member companies facing potential losses of $6.1 billion this year if oil remained around $135 per barrel.

- Peak Oil means Peak Airlines. That is, perhaps until we can find something else to fly them on, and it certainly won't be any time soon. Some, like Virgin Atlantic may be betting on biofuels but there just isn't enough to go around. Food prices are already rising, with rice, wheat and most recently corn setting new price records on a regular basis - if more companies switch to biofuels , it will only worsen the situation. Peak Airlines is just starting to hit - just like Peak Oil, we haven't seen anything yet.