Sharp Increase in Oil Prices Fuel Inflation

By Rajan Moses; Mustapha Kamil and others

THE sharp 40.1 per cent rise in global oil prices seen from January to

August this year has triggered higher inflation in Malaysia.

For the first eight months of 2005, the Consumer Price Index (CPI)

increased 2.8 per cent compared with a rise of 1.2 per cent in the same

year ago period, primarily because transport costs have become more

expensive.

Malaysians have had to pay more for food and transport following upward

revisions in bus and taxi fares and that of the ceiling price of chicken.

In addition, there has also been imposition of higher excise duties on

liquor and tobacco during the year causing hefty price increases.

Prices of other CPI components, however, remained stable with marginal

increases.

Food, with the highest weightage of 33.8 per cent, edged up 3.5 per

cent during the eight months, contributing to the bulk of 43.1 per cent

of the total increase in the CPI.

Higher prices of meat, fruits, vegetables, fish, milk and eggs caused a

3.8 per cent increase in the price of “food at home”.

The price of “food away from home”, or imported food, also increased by

3.1 per cent and contributed 24.7 per cent to the increase in the food

group index.

Transport and communication, the second largest contributor, added 24.7

per cent to the CPI. This component posted a 3.6 per cent increase

following the upward revision in fares for buses and taxis effective May

1 this year.

Beverages and tobacco added 15.2 per cent to the CPI, recording the

highest growth rate of 13.6 per cent during the eight months.

Increases in other CPI components were relatively small while the only

decline was in clothing and footwear, which dropped 1 per cent, partly

due to stiff competition and low-cost imports from China in particular.

The Producer Price Index (PPI), which has been increasing since April

2004, continued to rise but at a slower pace of 6 per cent, in the first

seven months of 2005.

Most of the PPI components registered moderate increases except for

mineral fuels, lubricants and realted materials.

The Government announced four measures to ease the burden of rising

domestic prices and cushion the effect of soaring global oil prices. They

included a moratorium on further price increases for petroleum products

until year-end, delay in toll rate increases and reduction in road tax

for commercial and private vehicles.