THE INFLATIONARY EFFECTS OF FUEL PRICE ADJUSTMENTS IN MALAYSIA
DOI:
https://doi.org/10.55197/qjssh.v7i1.1090Keywords:
inflation, fuel price, cost-push inflation, MalaysiaAbstract
Malaysia is a crude oil-producing country. However, the Malaysian government started to rationalise the subsidy for fuel from the end of 2014 to reduce the fiscal burden. Recently, the government has gradually abolished the fuel subsidy, including for RON97 and diesel. For RON95, the government replaced the subsidy programme with BUDI 95–a fuel subsidy with a limited quantity. Hence, fuel, as a daily necessity for most households in Malaysia, will face an increase in the cost of living. This study aims to investigate the impact of fuel prices on inflation in Malaysia. We use the monthly data from January 2014 to November 2025 and Fully Modified Ordinary Least Squares (FMOLS) for the estimation. The empirical results prove that fuel prices significantly increase the price level in Malaysia. As a result, the Malaysian government should be careful when considering the idea of abolishing the subsidy for RON95. However, the government is advised to use other alternatives to continue the subsidy to reduce the cost of living among citizens, especially those from lower-income and middle-income groups.
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