Cheaper fuel, but what about food?

Malaysians today welcomed the latest reduction in fuel prices, but they also blasted the government for not doing enough to keep the prices of food and other goods down, pointing the finger at lax and corrupt enforcement.

“The drop in petrol prices benefits only a certain golongan (section) such as the car drivers. But it won't help the lower income groups much. Tell me, which trader would want to cut his price? Where is the domino effect to the rest of the economy?” President of Consumer Association of Penang SM Mohd Idris told Malaysiakini.

“So we don’t think it is enough. The government is not looking at the problem from the view of the whole society. They are just doing it as a popular move but it is not going to help all of us. It is very hard to get traders to reduce once they have raised their prices.”

Prime Minister Abdullah Ahmad Badawi yesterday day cut fuel prices, the third time in as many months, to track falling world oil prices and in a bid to curb rising inflation in the country.

Pump prices of petrol RON97 was cut by 6.1 percent or 15 sen to RM2.30 per litre. RON92 reduced by 10 sen to RM2.20 per litre, while diesel prices was lowered by 20 sen to RM2.20 per litre.

Since hiking pump prices by 41 percent in June, the government has u-turned in the face of a nationwide outcry, cutting fuel prices in August and again in September.

RON97 was RM1.92 per litre in June before the hike.

“The good part is that it is a move towards a market-driven system. A move that will eventually allow the industry rather than government subsidies to determine the pricing. But it is the getting there that is a problem,” Yeah Kim Leng, chief economist at RAM Holdings, told Malaysiakini.

Annual inflation rose 8.5 percent in August - unchanged from July when it hit at a 27-year high - due to shooting food and fuel costs. Inflation had been 3.8 percent in May, the month before the government cut subsidies and raised local pump prices in line with rocketing global prices.

Rising costs were also exacerbated by the government’s refusal to raise interest rates, which led the ringgit to weaken and in turn pushed up the prices of many imported items, including components of many basic foodstuffs and goods.

Competition versus subsidies

According to CAP's Mohd Idris, a proposal by Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad to speed up the process of aligning local pump prices with international markets needed to be carefully studied before being implemented.

“There are so many groups proposing so many new ideas. The government is currently reviewing prices on a monthly basis. Gerakan wants it to be shortened to every two weeks. DAP wants every day. It may be done in advanced countries, but over here? Are we ready? Do we have enough resources to prevent hoarding and speculating? Will our enforcement officers be able to stay on top of things,” Mohd Idris shot back.

To ensure consumers got the benefit of lower world oil prices faster, Shahrir suggested trimming the decision-making panel to a team of four - comprising the prime minister, finance minister, second finance minister and himself.

Currently, changes in fuel prices requires the approval of the entire cabinet.

But the minister also said the monitoring period for price adjustments should be done at a reasonable intervals.

RAM’s Yeah said Malaysians would have to get used to the idea of fluctuating fuel costs as price controls would eventually become a tool of the past - allowing competition, supply and demand to determine price levels.

Such a market-based system would reduce the government’s hefty fuel subsidies, he said.

“The ideal is to move onto a daily basis. This would effectively mean no price controls. Petrol station operators will be able to fix the price level themselves, just as sellers of other goods fix their own sale prices,” Yeah said.

“The public should not worry about this, competition will keep prices under control. The government has to keep a close watch, but come in only when things get out of hand. The idea is to let the industry compete because only then can the consumers get the best price.”

In the 2008 Budget, Abdullah’s government set aside more than RM30 billion to subside fuel prices. The subsidy is likely to form the bulk of the fiscal deficit when the nation's accounts are tallied up at the year end.