Inflation contracts now, but set to rise in near future

By Jagdev Singh Sidhu (THE STAR ONLINE)

JUST as inflation contracts for the first time in decades, it is set to rise in the near future for a number of reasons.

Higher public transport charges will add to inflationary pressure and although a hike in electricity tariffs appears to have been put off for now, inflation will pick-up should that be raised. And on both counts, the impact will have far reaching consequences on the public.

The majority of people will be hit by higher bus and taxi fares as thousands each day throughout the country use that mode of transportation.

The rise in public transport charges stems from taxi drivers and bus operators clamouring for higher charges as the previous rise in taxi fares was in 2005 and school buses in 2006.

People won’t like it but I suppose they can emphatise with the plight of private taxi and bus operators who like many Malaysians would have incurred higher costs without a corresponding rise in income.

Another reason given in the granting of higher public transport charges is the prospect of better service but I am not hanging on to hope that public transportation improves just because fares are higher.

The public transport system is inefficient in the major cities in the country, especially Kuala Lumpur and Penang, and have remained so for decades.

Higher fares is not a substitute for more buses and a more extensive rail network.

Talk is rife that electricity tariffs are set to increase but the Government has indicated that any move to burden the public is off at the moment.

However, the motion to justify a tariff increase has been set in motion and among the many reasons given is the cheap price of power.

Well, should tariffs be raised by the reported quantum of about 4%, the new rates on a global scale are still cheap but as the rates are now more exposed to fluctuations of natural gas prices, people should be prepared to pay a lot more for their electricity in the coming years.

That is because most of the country’s power is from natural gas and even though the gap between the domestic price of gas and the international price is now narrower, it was much wider when oil and gas prices were at record levels.

Any improvement to the global economy will only see those prices rise and electricity prices go up.

Nevertheless, the argument for a tariff hike also extends to the need to remove the subsidy mentality and by allowing electricity tariffs to gravitate towards world market prices, companies can be more efficient and competitive.

There are a multitude of reasons that affect the efficiency and competitiveness of a company.

I doubt paying more for electricity will make a company more competitive or efficient but if a company learns to use less energy to generate RM1 of revenue, it becomes efficient.

Higher charges might nudge companies to use less energy but not necessarily make them more competitive or efficient.

The World Competitiveness Report sets down various parameters in which a country’s competitiveness is ranked.

Quality, not price of electricity is one of 122 factors that determine a country’s competitiveness.

And the same would extend to companies where productivity, wages and product quality might play a bigger role in efficiency than the price of electricity.

And I have my doubts whether the previous hike in tariffs had any substantial influence on any improvement in corporate Malaysia’s competitiveness.

There are other reasons that have more to do with improving the country’s competitiveness and efficiency of companies and those too need to be tackled in earnest.

People point out that too big a government will lead to inefficiencies and we all know the civil service in the country is bloated. Maybe that has to be looked at in improving the country’s competitiveness and efficiency.

Then there is the tax rate. The effective tax rate paid by Malaysians is too high.

Then there is the overall issue of government policies that need to be repealed or changed to improve the underlying competitiveness of a country.

Those changes will have a far bigger impact on efficiency than raising power charges.