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Economy Can Absorb Oil Price Rise: Economists

Posted on: Tuesday, 2 August 2005, 00:00 CDT

CONCERNS about higher inflation following the latest rise in petrol

prices are exaggerated, economists say.

Consumers may feel the pinch in the short term, but there is a lot to

gain in the long run.

RAM Consultancy Sdn Bhd chief economist Dr Yeah Kim Leng said

Malaysia's economy can absorb the oil price increase as petrol and diesel

in the country are still subsidised.

"The increase in domestic oil prices is still manageable as we absorb

30 to 20 per cent of the price rise. The economies of other net oil

importing countries would be more affected than us," he told Business

Times when contacted in Kuala Lumpur yesterday.

On Sunday, the Government increased pump prices between 5 sen and 20

sen per litre, the third increase this year, as it cut back on subsidies

in view of soaring crude oil prices.

Yeah said the Government has to roll back the oil subsidies to reduce

distortion in the domestic fuel market. The rising oil price reflects the

growing scarcity of the energy.

"If Malaysia does not raise the price of oil, there will be excessive

consumption of oil and no incentive for the country to move towards

effective consumption of this non-renewable energy," he said.

He said the high petrol and diesel prices will spur oil exploratory

activities, improve refinery systems and search for other renewable

energy like solar and wind.

Economists said the increase in domestic pump prices is inevitable

given the high oil prices in the international market which had surpassed

US$60 (US$1 = RM3.75) per barrel.

"You can't help it. It's the work of market forces. We operate on a

market economy and we should respond to international market prices,"

Asian Strategy and Leadership Institute director Tan Sri Ramon Navaratnam

said.

Navaratnam said the oil subsidies should be abolished altogether and

the money could be used to improve public transportation and alleviate

poverty.

He said although the price of fuel has increased, the prices of

essential goods like foodstuff are still placed under controlled items.

Another economist said the country's consumption pattern is on an

increasing trend, and will continue despite the increase in the fuel

prices and transportation costs because the income level is rising as

well.

"The current inflation level will not affect consumption pattern as

inflation will ease once the global oil prices stabilise," the economist

from a local brokerage said.

Source: Business Times; Kuala Lumpur

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