Wednesday, May 11, 2011

Ringgit strenghten against USD/Greenback but no change of purchasing power of malaysian?

By The Star

The increase in the price of sugar signalled the resumption of the subsidy rationalisation programme many thought was put on hold given the inflationary pressures felt by countries globally.

Economists said although prices for selected goods might rise, they expected the key determinant of inflation - the price of RON 95 petrol - to remain stable as efforts to keep a lid on inflation.

“It will be on a gradual basis,” said CIMB Investment Bank Bhd head of economics Lee Heng Guie on the subsidy rationalisation programme.

The price of coarse and fine sugar increased by 20 sen to RM2.30 per kilo yesterday, reducing the Government's subsidy for sugar to RM116.6mil from RM400mil per year.

The increase yesterday was the first for this year but the fourth overall since the Government's subsidy rationalisation programme was put into effect. Sugar prices saw three increases last year of 20 sen in January, 25 sen in July and 20 sen in December.

Economists feel the move to cut subsidies was still needed given the use of such interventionist policy to keep prices and cost low during a time when inflation has become a thorn in the flesh for many countries.

Inflation in Malaysia hit 3% in March but was among the lowest in Asia where it had been the focus of many central banks. Interest rates have been raised in a number of Asian countries in recent months to stave off inflationary pressures.

For Malaysia, the consequence of cutting the subsidy on sugar and letting prices go up is not expected to have a direct impact on inflation.

Sugar is a constituent in the basket of goods which inflation is calculated from but does not have a big weightage.

Economists, however, wondered if the secondary effect from the higher price of sugar would filter through to a larger food segment should retailers and restaurants push up the price of drinks.

Economists said the willingness of the Government to keep RON 95 prices constant was commendable as fuel and energy costs will have a bigger impact on the rate of inflation.

“If the Government maintains the price of RON 95, it will mean it is concerned about inflationary pressure,” said Affin Investment Bank Bhd economist Alan Tan.

The price of RON 95 petrol, which is the preferred choice of fuel among motorists, have been kept steady at RM1.90 a litre in recent months despite global crude oil prices punching well above US$100 per barrel.

The Government has nonetheless matched the price of RON 97 petrol with that of international crude oil prices. The Government raised the price of RON 97 petrol by 20 sen a litre to RM2.90 a litre on May 5.

* I personally think that it is a wise move by the govt to cut the subsidies of food comsuption rather than petrol as said in the above article, it will have a bigger impact of the inflation rate.

* But i recog that our dear Ringgit is getting stronger than the USD, it should not be a problem to maintain the petrol price? I dunno why everything is increasing, since our ringgit is strenghten, our purchasing power should be greater/better and hence goods n services should be cheaper? Why is the govt still cut the subsi? damn.. can someone enlighten me? Mr.KPI guy..