Why is inflation risk skewed higher if RON95 fuel is included?

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Inflation Risk Tilted Upwards if RON95 Fuel is Included in Subsidy Rationalisation

The risk to Malaysia's inflation outlook for 2024 is skewed towards the upside if the scope of subsidy rationalisation extends to RON95 fuel. AmBank Group forecasts inflation to remain within a range of 2.5 per cent to 3.5 per cent for 2024, primarily driven by the ongoing effects of subsidy rationalisation and an increase in the services tax.
Impact of Subsidy Rationalisation on RON95 Fuel

Subsidy rationalisation, particularly concerning RON95 fuel, is a significant factor influencing inflation. The government's move towards a targeted subsidy mechanism, expected to be realised in 2024, aims to streamline assistance. However, extending this rationalisation to RON95, a widely used fuel, could directly increase transportation costs for consumers and businesses.
Direct Effects on Consumer Spending

A higher price for RON95 fuel would immediately translate into increased expenditure for households that rely on private vehicles for commuting and daily activities. This rise in essential costs could lead to a reduction in discretionary spending as consumers reallocate their budgets to cover the higher fuel expenses. The potential completion of the National Utility database (Padu) in the first quarter of 2024 is linked to the implementation of these targeted subsidies.
Indirect Effects on the Broader Economy

The impact of RON95 price increases extends beyond direct consumer costs. Businesses, especially those in logistics and transportation, would likely face higher operational expenses. These increased costs could then be passed on to consumers through higher prices for goods and services, creating a ripple effect across the economy. This broader inflationary pressure, stemming from both direct and indirect consequences, contributes to the upside risk in the inflation outlook.

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Why is inflation risk skewed higher if RON95 fuel is included?

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