LOWER PETROL PRICES have not made John feel any richer just yet. As his family’s sole breadwinner, the 36-year-old salesman has larger concerns. Despite earning about RM6,000 per month, and another RM2,000 or RM3,000 if he hits his targets — which puts John’s earnings well above Malaysia’s median individual income — he worries that the prices of goods will increase faster than any potential rise in his income next year, when the Goods and Services Tax (GST) is implemented.

“I take care of four kids and my wife. I’m also helping out three of my family members. I don’t know how to answer your question on whether we are living frugally. We cook our own meals most of the time and the kids’ entertainment is their cartoons on Astro at home. I’m already thinking of terminating the subscription,” he says.

John’s financial woes are echoed by other so-called middle-income urban families, who have already had to pay higher prices for regular items such as eggs and school bus fares. He welcomes any little savings from the recent decline in global crude oil prices — which are only now trickling down to the consumer, after RON95 petrol stopped being subsidised by the government on Dec 1.

Unfortunately for consumers, that is where the savings end — at the pumps.

“Consumers will benefit from lower pump prices but the prices of other goods will remain quite sticky and are unlikely to come down,” says CIMB Research economist Julia Goh.

Interestingly, many car owners recently switched to RON97 petrol, at RM2.55 per litre, reportedly causing a shortage nationwide. “It shows that those who can afford it do not mind paying more for premium petrol as the price difference is narrow,” Goh says.  

At RM2.26 per litre for RON95, the savings over RON97 come across as marginal. A standard 45-litre fuel tank would yield a savings of just RM1.80 per full tank, from RM103.50 to RM101.70. At an average of four fill-ups per month, using RON95 saves RM7.20, not enough to buy a 1.5kg chicken at RM5.49 per kg. For more perspective, 6% GST on RM100 worth of non-exempt groceries alone is already RM6.   

While economists do not expect the prices of goods to decrease with the fall in the price of oil, consumers can take cold comfort in the fact that they do not have to face rising prices just yet. However, even this might not be the case for all goods.

RHB Research chief Asean economist Peck Boon Soon says the recent weakening of the ringgit against the greenback could result in higher import prices, potentially causing prices of imported goods to increase.

“The increase in prices would depend on whether the goods are imported, given the current weak ringgit. On a net-net basis, we may see price pressures stabilise as oil prices remain low,” says Peck.

But it will be a different story when GST kicks in next year. Economists still expect inflation to spike in 2015 when GST creates cost-push pressures. They hesitate to say if inflationary pressure from GST could be negated by crude oil prices remaining at this level next year.

“The impact of GST on consumers should be [mitigated by] lower oil prices, but I don’t see the current level of oil prices decreasing inflationary pressure. A four sen per liter reduction in petrol price is not significant savings [to a consumer],” says AllianceDBS Research chief economist Manokaran Mottain.  

CIMB Research’s Goh, who forecasts headline inflation for 2015 at 4%, says low oil prices may help ease the inflation premium if they decline even lower from current levels.

Meanwhile, RHB Research’s Peck has trimmed his inflation forecast from 4.2% previously to 3.8% for 2015. He says the lower figure takes into consideration falling crude oil prices, resulting in lower retail pump prices.

Peck says that the lower pump prices could help ease some upward price pressure caused by GST because RON95 petrol has a 7% weightage in the consumer price index.

Some market observers say US$70 to US$80 per barrel of crude could be the new “normal”. This is because excess supply from the shale oil boom in the US and weaker global demand will negate price gains from supply shocks caused by geopolitical tensions.

Should global oil prices continue to slide, lower petrol prices should put a little more money in the pocket of the consumer. However, John says he cannot afford to bet on savings from lower petrol prices alone and is already looking for other ways to shore up his income in anticipation of higher prices ahead. “I need to look for a new job with higher salary soon. Perhaps I could start some form of business with the cash I get from the refinancing of my apartment after I pay off some of my debts.”

This article first appeared in The Edge Malaysia Weekly, on December 8 - 14, 2014.

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