Costlier public transport, low impact on inflation

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KUALA LUMPUR: Higher fares for public transport are not expected to have a significant impact on domestic inflation. However, the increase must be justifiable, economists say.

“Suppose the authority sets a higher price [for public transport], it would not have a huge impact on the CPI (consumer price index), because the weightage of transport is 14.9% in the basket, and merely 0.69% of this amount is attributed to road transport services,” said Dr Yeah Kim Leng, an economist and dean of the School of Business at the Malaysia University of Science and Technology.

On Tuesday, it was reported that the Land Public Transport Commission (Spad) is mulling an increase in local taxi fares of up to 40%, and an official announcement would be made within this week.

Yeah is of the view that an upward revision in public transport fares at this moment is “less justifiable”.

“I think this is not the right time for a fare hike. When inflation has been on a downtrend currently, it is hard for them (Spad) to justify increasing public transport fares,” he told The Edge Financial Daily in a phone interview.

Inflation has been declining since November, mainly driven by lower oil prices. Inflation in January came in at a five-year low of 1% year-on-year, compared with 2.7% in December and 3% in November. 

Yeah added that the impact of the implementation of the goods and services tax (GST) on April 1 will be muted amid lower oil prices and weaker demand for properties.

According to a Bloomberg survey, economists are projecting inflation of 0.2% in February. The data will be released tomorrow.

RHB Research Institute economist Peck Boon Soon has a different view, saying that a revision of taxi fares is reasonable, though an increase of 40% is “a little bit too high”.

“Putting fuel cost aside, taxi operators would be bearing higher spare parts prices, because of the GST,” he told The Edge Financial Daily when contacted.

Peck stressed that while a revision of fares is reasonable, the quantum of increment has to be reflective of taxi drivers’ operating cost.

An analysis of CPI data showed that the transport component recorded a mere 5.36% increase to 104.2 points as at end-January 2015, from 98.9 points in January 2010. 

The moderate increase over the five-year period was mainly due to a sharp fall between December 2014 and January 2015, driven by what the Department of Statistics termed a “significant decline” of 10.6% in the expenditure class for fuel and lubricants for personal transport.

 

This article first appeared in The Edge Financial Daily, on March 19, 2015.