Food prices, subsidies and outlook

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,The impact of raising the ceiling price for chickens, eggs and cooking oil on overall inflation is expected to be minimal since the weightage for these items is around 3.4% of the overall basket.But it will impact overall food inflation since it accounts for a 12.0% share.

MAY’S inflation data for Malaysia showed headline inflation rising by 2.8% while core inflation, which excludes volatile items and administered prices, increased by 2.4%.

Both the headline and core inflation have been on the uptrend since March this year, and expectations are for overall inflation to remain sticky in 2022.

The high inflation was mainly caused by higher prices for food. Regional neighbours are also experiencing the same situation where prices for food in Singapore increased by 4.5%, Indonesia by 5.8%, Thailand by 6.2% and the Philippines by 5.2%.

For Malaysia, prices for most food items are still controlled by the government. These include several important food items such as meat, poultry and selected fruits and vegetables.

Price capping

The government announced the capping of the chicken price at RM9.40 per kg beginning July 1, 2022, which is 5.6% higher than the previous price cap of RM8.90 per kg. Nonetheless, it is lower than the actual market price of RM9.70 per kg.

To compensate the narrowing profit margins, most sellers now are charging RM1 to RM3 per kg more for cutting and delivery services. This will increase the final price on consumers to around RM10.70 to RM12.70 per kg, which is already above the optimum market price.

The government is allocating around RM370mil to keep the price ceiling, bringing the overall subsidy for chickens to RM1.1bil since February this year.

The government has also committed to ease the process for chicken producers to apply for the subsidy, speeding up the process of importing chicken feed commodities, and exemptions on the intake of foreign workers for the poultry industry.

Also, new prices for eggs were set with grade A eggs priced at 45 sen each (previously: 43 sen each), grade B at 43 sen each (previously: 41 sen each) and grade C at 41 sen each (previously: 39 sen each). On average, the price ceiling increased by 4.7% for eggs.

Meanwhile, subsidy for cooking oil was removed.

Currently the average market price for 1kg bottled cooking oil is RM6.72 per bottle, which is 0.3% higher than the initial price cap. Cooking oil, however, could go higher from this point due to higher crude palm oil price.

The good news is the price for polymer bag cooking oil is still capped at RM2.50 per pack, and this will provide some relief to B40 households since the actual market price for the polymer bag cooking oil is around RM9 per pack.

The removal of the subsidy for bottled cooking oil will lighten the government’s burden since it cost around RM20mil a month.