A bit of rambling....

Last week, the Government of Malaysia increased the fixed price of petrol from RM1.92/litre to RM2.70/litre, a 41% increase. This is in response to the price of crude oil which has been rising rapidly and is now hovering above US$130 per barrel. There are many factors contributing to this price rise, refer to a good newspaper, or a current affairs publication such as The Economist.

I think it is a step in the right direction; the Government cannot afford to keep up such a high subsidy level for petrol, as the difference between the market price and fixed pump price widens. Yes, we the citizens will be badly affected. The ones who require large amounts of fuel in their daily occupations (e.g. taxis, fishermen, hauliers to name a few) will suffer battering cost increases. The more fortunate among us will just have to cut back on our fuel usage. And in the face of rising food prices, general inflation and the tendency of incomes to not rise in tandem, it's quite fair to feel this price increase is unjustified.

However, in lowering the subsidy the Government has more money to spend on us the people, on perhaps reducing our dependence on cars by improving public transport. There is the possibility of this extra money just lining official's pockets, of course; hopefully the Government we chose in March is better than that.

Reducing the amount is also fairer to the people who pay market prices for petrol and are exposed to the truth of fuel price volatility. These are largely developed countries, and living in one and reading their newspapers I can say they are at least as badly affected as we are by rising fuel costs (heating and electricity companies have increased their prices by 10-15% each time, 5 or 6 times in the last 3 years), only it does not seem so bad because the fuel prices were rising with the crude oil price, rather than being artificially held down for some time and raised by 40% in one day.

I only hope this will not spark off a wage/price spiral in Malaysia. It is entirely possible, essential food items are price-controlled, and public transport fares are Government-regulated, and this fuel price rise (I mentioned only petrol at the beginning but gas and diesel prices have risen as well, by around 30%) may have pushed vendors' costs high enough that the regulated prices are loss-making and they either raise prices and risk regulatory action or cease operating altogether, which will reduce the number of vendors and thus drive prices up further. People will start demanding more pay to not go hungry and costs will go up driving prices up some more etc.... not fun.

With regard to fuel prices, I hope to see the day Malaysians will not require subsidies on fuel any more; the developed countries in the West do not provide it (in fact the UK taxes petrol making it even more costly) and if that is what the most advanced countries are doing we could consider moving in that direction as well.