-  Prime Minister Datuk Seri Najib Tun Razak announced yesterday a 20 sen increase for both RON95 petrol and diesel prices effective last midnight. The new prices for RON95 are RM2.10/litre and RM2.00/litre for diesel.

-  With the 20 sen subsidy reduction, the government now provides a 63 sen subsidy for a litre of RON95 and 80 sen for a litre of diesel.

-  For the full year of 2013, the government has allocated a staggering RM24.8bil (or approximately 11.9% of total revenue) for fuel subsidies. In comparison, fuel subsidies amounted to RM27mil (or 0.1% of total revenue) in 1990.

-  Additionally, the government will increase the 1Malaysia People's Aid (BRIM) payment in the 2014 Budget to ease the burden of low-income earners and people easily affected by the fuel subsidy rationalisation measure.

-  As a recap, the government made an extraordinary disbursement totalling RM1.92bil under the first round of BR1M in 2012 while total spending under the second wave of BR1M had amounted to RM2.9 bil during the start of this year.

-  In terms of consumer prices, we expect the 10.5% increase in the pump price of RON95 to pose some upward pressure to inflation during 2013.

-  The cost component of transport in contributes 14.9% to the basket of CPI. With the petrol pump price increase, the transport index is likely to register an increase of 3.2% in 2013 vs. the YTD growth of 0.5%.

-  As such, we tweak our full year 2013 assumption higher for inflation higher to 2.2%, which is +0.2ppt from our earlier estimate of 2.0%.

-  On a YTD basis, inflation had increased by a modest 1.7%. Basically, prices of the non-food segment rose by 1.0% YTD while the cost component of food and non-alcoholic beverages advanced by 3.4%.

-  Meanwhile, we continue to expect moderate cost pressure during the month of August before the uptick in inflation from September onwards. Inflation is expected to grow by 2.0% in August following a price increase of 2.0% in July.

Source: AmeSecurities