The price of diesel fuel is expected to increase by 71% when the government removes its subsidy completely.
A simulation by SME Bank shows that diesel price could be between RM3.25 to RM 3.67 per litre as the global price of petroleum remains high, when the government reverts to a free-float mechanism based on global oil prices. The current price is RM2.15 per litre.
They also said that an increase of 1% in diesel price contributes to a 0.1% rise in Consumer Price Index (CPI), hence elevating inflation by another 7.1%. Producer Price Index (PPI) is also expected to rise sharply, although it was not mentioned in the report.
Both CPI and PPI constitute domestic retail prices affected by inflation.
All these fancy words mean that businesses and industries will find higher operating costs across all sectors and industries especially transportation, construction, retail, agriculture, and manufacturing.
While some companies are expected to absorb some of this rise, it is more realistic to expect them passing the costs down to consumers.
SME Bank, in their conclusion, expects the removal of diesel subsidies to be partial to allow the M40 and B40 groups to continue using subsidised fuel, that the total removal only affects diesel users for now as it accounts for 44% of fuel subsidies, and that Sabah and Sarawak are excluded from the removal.
