Fuel price and inflation

Being a student of finance and economics (well I can say that I am a graduate now), I follow closely the development of inflation in Malaysia. In an interview with AlJazeera few days ago, DPM Dato's Seri Najib expressed his disappointment that the retailers do not reduce the price of goods even though the government has reduced the fuel price.

I have warned in my previous post that in deciding to increase the fuel price by 70 cents, the government may have underestimated the price stickiness factor. Most of the economists understand that price stickiness is always asymmetrical. That is, it's easier to increase rather than decrease. While I understand DPM's disappointment, I would not say that retailers should take all of the blames. The government has made it worse in constantly reminding that the fuel price might increase again in the future. This might spark expectation that the operating cost will increase again hence induce retailers to lock in profit during this time, thus explain why prices are sticky.

I agree with the notion that fuel price (especially petrol) should be floated, rather than set by a committee who meet once in 2 weeks. The government is no longer subsidising petrol, hence there is no different between the two systems. Besides, all of the benefits can be passed immediately to consumers. Even if the global fuel price increase, the retail price per litre would not increase more than 20cents. Hence this system would prevent the price from increasing by 70 cents again!

There might be complaints by suppliers about the volatility of their supplies, but looking at how well the system is implemented in New Zealand, I do not see it will cause a significant problem to them.

Fulfill my promise...

Write 10 random things about the people u know. It must be something they never told u directly, and u knew it either by guessing, eavesdropping, or through observations.When u're done, tag other ppl as usual

Haish it's so hard to complete this thing but promise is still a promise. I've actually wrote 4 random things months ago, but I couldn't think about the other 6 hence just saved it as draft. The picnic yesterday reminds me about this, so let see what I have.

1. The word sentimental reminds me of Yasir, a good friend of mine since I was in standard 1. He likes to show that he is strong, but at times he can be very sensitive. I have a tendency to 'over-tease' him and it's not hard for me to know that he is actually upset with me. He will say 'ala, kawan baik rileks lah', but his face shows it all. Being a good friend, I will try to make up for what I've done though I'm not really good in asking for forgiveness. Sorry again bro!
2. I always (well, most of the time) know how Aca will respond to me or what she will do. It's kinda hard for her to suprise me and I think this annoys her so much. Anyhow, I think thoughts that matter, not the suprise. I've always enjoyed and appreciated so much what she'd done for me (especially my 20th birthday). But sweetheart, you still have to learn how to do a better poker face.:-p
3. I like to plan but Nadee likes to go with the flow and I think this what makes it fun to hang out with her. I get to do many random stuffs with her and she makes me realize sometimes it is better not to plan everything! And Nadee, I hope you've enjoyed Welly's hospitality.:-)
4. Sometimes Ali worries about things excessively. But this part of himself drives him to think ahead. Many thanks to this characteristic, I've always been updated about what's happening around us and what to do, especially uni-wise.
5. The same thing goes to Connie. But sometimes she worries too much until she can't complete the task properly. So babe, next time chill, take a deep breath and I'm sure you'll be fine.:-)
6. Yusuf can be too enthuasiastic about something, and he likes to share this with others. And damn, his enthuasiasm makes me want to buy a Mac so much!
7. Aio also have this characteristic, but in a different way. He'll put 200% focus on what he likes, for example manga. When he put his headphone on, turn on his favourite music and read his favourite manga, he will never listen to what you say unless you stand in front of him. But hey bro, you need to be more aware of your surroundings otherwise I can easily stab you from the back if I emo lol!
8. Wani is a very lucky girl. Why? Being the only sister of mine, I always have a problem to say no to her request hence she always get what she wants from me.
9. Ellin hates it when I call her makcik and she can be very emotional!!!
10. Afiqah once wrote on her facebook that she is excited to get married and I think she's crazy!!!Haha. But I'll pray that she'll be happy with her 'one' forever.:-)

Well seems that I've finished the list, after almost 7 months...

Snippets

Holiday
Finally I've finished my exam. It's been an exhausting month for me, and tomorrow I'm going back to Malaysia. Aca have a paper tomorrow, so I wish you all the best yeah sayang. I'm sure you'll be fine, you've been studying really hard.

Politic in Malaysia
All I could say is WOW! What a tremendous phenomenon in Malaysia. Will give more comment about it once I am in Malaysia

This blog
Haish, I haven't fulfilled my promise to Nadee about the "tag". Now I realise how hard it is

Shocked

Finally the government has increased the price. Though I agree with the main idea behind it, but I am totally shocked with the way it is implemented.78sen overnight??? Only last week the government announced it is thinking of banning the sales of petrol to foreigners but suddenly they changed their decision to the other extreme side. What???

I may see the reason why it's one off-increase rather than gradually. If they were to increase the price the gradually, public will expect the price in next month higher than today thus will resort to buy a lot of petrol today, which might lead to sudden shortage of petrol. But the government certainly can be more subtle, like reducing 30cents or 40cents and do not announce about its next move. Argh there are so many economists in Malaysia who certainly know about the importance of controlling "EXPECTATION", yet no one dare to advise our government (or the government did not listen???)

What I'm afraid is not about the petrol, but rather than the consequences of the sudden increase. People may become panic and resort to many irrational activities. For example price of goods might be skyrocketting, share price will fall and lead to other activities. The chain will be longer and longer, and I'm afraid we will be where we were at 1978.

If only the government think better....

Ban the sales of petrol to foreigners?

I was amazed by Malaysian's government decision to ban the sales of petrol to foreigners, or to any car with foreign number,within 50km radius of the border. It's even in the New Zealand newspaper! Don't you think it's ridiculous? Just imagine a foreigner from Singapore who wants to driver around Johor Baru for few days. If he drive a lot within few days, where does he want to fuel up his car? Would be ridiculous for him to travel more than 50km just to find a petrol station where he can fuel up his car. Or he can just go back to Singapore which mean Johor will get less revenue from tourism activities.

Last year alone, the total of subsidy is RM54 BILLION. Personally I do not think subsidy is a wise move in the long term. It just create a distortion in the economy which might result in inefficiency. In New Zealand, I have to pay around NZD2 per litre of Petrol while our lucky friends in Malaysia will only have to pay around NZD0.6 to NZD0.7 per liter (i think it's around RM1.90 to RM2 in Malaysia). Here in New Zealand, everyone is planning their travel properly while in Malaysia, I doubt there are many who do so (this is frommy personal experience, I even drive to go to a shop which is 2 km away). People might argue that the move to reduce the subsidy will be harmful for the citizen. But imagine the government halves the subsidy, every Malaysian citizen will get extra RM1000 per year at least. Definitely it will not be in term of cash, but the government can use the money for human development. These development programmes will ultimately increase the wealth of Malaysian citizen and they then can afford to pay for the petrol. It is vital to instill a culture of you spend what you got. Some people might argue that it's unfair for people who even can't afford to pay for the minimum stuff. So why not create a mechanism where those people will get more incentive than other people? Say all the money from the subsidy can be used to build more free school,free polytechnic and free university. Those money can even be used to build farms or businesses. These value added activities will ensure the money keep flowing around, rather than let the money burnt by the petrol.

A good friend of mine once argued, we are petroleum exporter, why should we pay for the petrol? I really hope the government can start a "PETROLEUM SUBJECT" in school and let a FIERCE and SCARY teacher explain that petroleum is a non renewable resources. A report by Petronas has confirmed that at current rate, Malaysia will be a net importer of petroleum within 12 years. At the moment we can afford to subsidize RM54 BILLION because Petronas can get those money by selling petrol. But what about after 12 years? We should set a culture of sustainability. It is important to fill your needs right now, but you also have to think about the future. What about your children? Or it's just 10 years, it might affect yourself too.

I believe by reducing the subsidy, people will start to find a more efficient way to improve their lives, their businesses and so on. For example, businessman will not have to drive so much to go for meeting, they can just use internet to have teleconference. Internet not so fast enough? Then take the subsidy money and use it to upgrade internet. Efficiency will result in less demand for petrol and it will cause the price to fall. At that time, guess what you will enjoy? Efficiency means you will have more money, but you will have to pay less for the petrol. Result?BETTER LIFE!
It is estimated that the price of petrol will reach US200 per barrel. I guess that time the total of subsidy will be RM100 BILLION. I think it is rather unsustainable for government to keep subsidising the petrol. The government must be brave to make a non popular decision. Please think about the country, not your personal interest...

The rising price of food

I am attracted to the current issue that is faced by most of the population on earth, which is the rising price of food. Across the world, be it wheat or rice, the price of food is increasing at a dizzying rate However it is rice, which is the foundation of the Asian and also the symbol of its culture, that is causing the greatest anxiety. Most of Asian families spend more than half of their income to buy food, and the increasing price force them to reduce expenditure on other item (or even have to eat less food). The simple explaination given by economists is there is not enough rice in the market. But most people would ask, "where does the rice go?"I would say that this phenomena is the ugly consequences of globalisation. As a result of globalisation, every country is becoming more and more specialized in one industry and become more reliant on other countries for food. We can see that many developing countries in the world is focusing more on service industry rather than agriculture. Many leaders of those countries claimed that they do not reduce the production of food. But one vital point not to forget is the increasing number of the population. As the number of human increases at an increasing rate, the demand for food is also increasing. Countries such as Philippines and Bangladesh depend on imported rice to feed their large populations. However due to low supply of rice in, many exporting countries have resorted to limit their export. The importing countries then will face the problem of low supply of food and will have to increase the price of food to reduce the demand.However, people tend to forget that rice is the foundation of their population and there is no way people will stop buying rice. I could not see this problem to be solved in the near future if effort to increase the supply of rice in their own countries are not taken. In fact, I do not see they can increase the supply of food quickly enough due to other problem, such as the rising cost of petrol which will increase the cost of manufacturing food.

Been Tagged

Damn I just remember Nadee'd tagged me... Err I promise I'll do it soon k!hehe:p