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Economists remain unfazed by diesel price increase

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  • The diesel price hike to RM3.35 per litre in Malaysia is not expected to significantly impact the prices of essential goods due to existing subsidies for commercial transport.
  • The Subsidised Diesel Control System (SKDS) ensures that public transportation and logistics vehicles continue to receive diesel at subsidised rates.
  • Economists believe that while price hikes are inevitable, the increase in diesel prices alone is not the sole factor driving inflation.

The recent increase in diesel prices in Malaysia has sparked concerns among consumers about potential hikes in the cost of essential goods and services. However, economists are urging the public to stay calm, assuring that the impact on inflation will be minimal due to the government's strategic subsidy measures.

On June 11, 2024, the diesel price in Peninsular Malaysia was floated to RM3.35 per litre. This move, part of the government's targeted subsidy rationalisation, replaces the previous blanket subsidy system. While the change has caused anxiety among consumers, experts believe that the measures in place will prevent significant price increases for essential goods.

Nungsari Ahmad Radhi, an economist, highlighted that the majority of commercial transport vehicles still benefit from subsidised diesel prices under the Subsidised Diesel Control System (SKDS). "Given that almost all public transportation, all logistics, and all transportation companies still enjoy subsidised prices, how can that be true?" he questioned when asked about the potential for rising costs due to the higher pump price for diesel.

The SKDS 2.0 allows qualified logistics vehicles to apply for fleet cards, enabling them to purchase diesel at a subsidised rate of RM2.15 per litre. Additionally, the SKDS 1.0 ensures that land public transport vehicles, including school buses, express buses, ambulances, and fire and rescue department vehicles, continue to receive diesel at RM1.88 per litre. These measures are designed to curb the impact on consumer goods prices and maintain economic stability.

Economist Mohd Nazari Ismail also weighed in, stating that while price hikes are inevitable in the future, the increase in diesel prices alone cannot be blamed. "Yes, prices may go up in the future. However, many factors may be involved in the price increase. The increase in diesel prices is one reason," he explained. He further elaborated that the long-term cause of price increases is a financial system that creates new money through lending, rather than the withdrawal of diesel subsidies.

The government's approach aims to balance the need for fiscal responsibility with the protection of consumers from inflationary pressures. By maintaining subsidies for commercial transport, the government ensures that the cost of essential goods remains stable, despite the higher diesel prices for private vehicle owners.

While the diesel price hike has understandably caused concern, the strategic measures implemented by the government are expected to mitigate significant inflationary impacts. Economists remain confident that the targeted subsidy rationalisation will help maintain price stability and protect consumers from undue financial strain.

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