Economists see higher inflation from energy hikes

By Lee Wei Lian
The Malaysian Insider
May 30, 2011

Power tariffs will be increased by 7.12 per cent on average come June 1. — Reuters picKUALA LUMPUR, May 30 — Economists expect today’s price hikes in electricity and natural gas to be passed through to inflation-weary consumers, possibly pushing up the monthly consumer price index (CPI) by as much four per cent in the next few months from 3.2 per cent in April.

This follows the announcement from Putrajaya today that the electric tariff will be raised by 2.3 sen per kilowatt hour (kWh) or an average of 7.12 per cent while the price of natural gas charged by Petronas for power generation will go up by RM3.00 per mmBtu each six months until it reached market levels.

“I wouldn’t be surprised if the monthly inflation rate from June through to the third quarter approaches four per cent,” said Maybank Investment Bank chief economist Suhaimi Illias. “People also forget that effective next month, the diesel super subsidy will also be removed which will impact the cost of logistics.”

He added that there could be a risk to consumer spending from higher inflation but said that the country’s economic growth should remain intact.

RAM Ratings chief economist Dr Yeah Kim Leng said that there will be a one-off pass through in cost from the hikes in electricity and gas prices and that it could add “not more than” half a percentage point to the CPI for 2011.

“We still have the tools for overall inflation management,” he said.

Yeah said that he does not foresee a major dent in the country’s economic growth prospects and noted that high energy prices are not confined to Malaysia.

Malaysia’s inflation rate rose to a 24-month high of 3.2 per cent year-on-year in April following a three per cent increase in March, due to rising global commodity prices.

Minister of Energy, Green Technology and Water Datuk Seri Peter Chin Fah Kui said that the increase in electricity tariffs was due to the rise in natural gas prices.

He added, however, that while the rates have been revised, the 75 per cent of domestic consumers who utilise less than 300 kWh will see their charges unchanged.

A collection of one per cent of from users of 301 kWh and above would also be channelled to the renewable energy fund.

He said that domestic consumers who fall in the 301 to 400kWh per month band are expected to experience a “minimal” electricity bill increase, between RM0.07 to RM6.60.